NEW DELHI: After Dena Bank , the Reserve Bank now is likely to impose certain restrictions on couple of more public sector lenders under the Prompt Corrective Action (PCA) mechanism due to worsening asset quality, a source said.In view of mounting non-performing assets (NPAs), the RBI yesterday directed Dena Bank not to issue any fresh loans and hire new personnel.Already, there are 11 banks, out of 21 state-owned banks, under the PCA of the Reserve Bank because of their weak financials.One or two more banks may face PCA like Dena Bank if their quarterly numbers indicate further erosion of capital and unabated rise in net NPAs, a senior official of a public sector bank said.The RBI makes discretion, depending on the risk assessment , about what kind of restriction it will impose on a bank, the official said.The recent tight prudential norms released by the RBI on February 12 have added to the woes, another official said.As per the revised PCA guidelines released last year, if a bank enters 'Risk Threshold 3', it may be a candidate for amalgamation, reconstruction or even be wound up. Among the many metrics that are used to gauge how weak a lender is are capital, net NPAs, RoA and Tier 1 leverage ratio etc.Under the PCA, banks face restrictions on distributing dividends and remitting profits. The owner may be asked to infuse capital into the lender. That apart, lenders would also be stopped from expanding their branch networks. It would need to maintain higher provisions and management compensation and directors' fees would be capped.Meanwhile, the finance ministry has called a meeting of 11 stressed banks, which are under the PCA framework of the RBI on May 17, to discuss and deliberate on implementation of reforms agenda.The 11 banks on the RBI's watchlist are Allahabad Bank, United Bank of India , Corporation Bank, IDBI Bank, UCO Bank , Bank of India, Central Bank of India, Indian Overseas Bank, Oriental Bank of Commerce, Dena Bank and Bank of Maharashtra Together, these banks accounted for Rs 52,311 crore of the Rs 88,139-crore capital infusion plan (through bonds and budgetary support) announced by the government for 2017-18.

Source: Economic Times May 13, 2018 13:30 UTC