The state-owned UCO Bank will no longer be subject to the Reserve Bank of India’s (RBI) harsh lending limitations. UCO Bank was under RBI’s prompt corrective action (PCA) restrictions, which were imposed in May 2017. The central bank announced on Wednesday that the lender is no longer under these restrictions.
Following the exit of UCO Bank, only two banks remain under PCA: Indian Overseas Bank and Central Bank of India. The PCA framework is used by the central bank to punish banks that have exceeded specific regulatory limits in terms of problematic loans and capital adequacy. Furthermore, PCA comprises limiting high-risk lending, increasing provisioning, and limiting management compensation.
How UCO Bank got out of the PCA restrictions?
According to the RBI, UCO Bank has given a written commitment to follow the minimum regulatory capital, net non-performing asset (NPA), as well as leverage ratio guidelines on an ongoing basis. The RBI also received information about the new structural and systemic adjustments implemented by the Kolkata-based lender; to meet its commitments.
“The Board for Financial Supervision assessed the performance of the UCO Bank; which is currently under the RBI’s fast corrective action framework. The bank is not in breach of the PCA standards, according to its disclosed results for the year ended 31 March 2021,” RBI said.
UCO Bank’s net nonperforming assets (NPA) ratio was 3.94 percent as of March 31; down 151 basis points (bps) from the same time last year. Under Basel III, its total capital adequacy ratio was 13.74 percent; up 204 basis points from the fourth quarter of FY20.
On August 6, RBI governor Shaktikanta Das stated that banks that pass the assessments are getting off from the restrictive framework.
“We’re still looking into that position. One public sector bank was recently got out from the PCA list. And if and when we receive the requests, we analyze them to see if they meet RBI’s regulatory criteria. And if we are certain that they are, the RBI will take action. As a result, we’ve been removing banks from PCA,” Das explained. For more such updates, keep watching this space!