RBI takes Prompt Corrective Action to resolve Dena Bank's NPA puzzle

Reserve Bank of India has commenced a Prompt Corrective Action (PCA) against the Dena Bank after looking at the Bank’s negative return on the assets and its high net non-performing assets(NPA).

PCA is commenced when it was found that the banks breach certain regularity requirements like the return on asset, minimum capital, and quantum of NPA. RBI took this action in order to assess, monitor, control and to take the corrective actions on the weak banks who are facing problem to resolve these problems.

As per the Dena Bank, the action which is taken by the RBI will not have any negative impact on its functioning rather it will help in improving the internal controls of the bank as well as it will upgrade its activities.

Dena bank gross NPA has increased to about 16.27 per cent as compared to the previous quarter of 14.79 per cent. And its net NPA increased from 9.52 per cent to 10.66 per cent in the quarter ended March.

Three risk categories have been defined by the RBI in respect of NPAs, in the first category, banks who have net NPA ratio of 6-9 per cent will fall in that category while when net NPA is in between 9-12 will be in the second category and all those who are above the 12 per cent will be in 3rd category.

As per the designed framework, Dena Bank will fall under the risk category second and based on that restriction is put on the dividend payment, branch expansion and asked to make the higher provision for the losses on loan.