The Reserve Bank of India said it is placing IDBI Bank under watch in view of increasing bad loans. The bank said in statement to the stock exchanges that the central bank has initiated prompt corrective action (PCA) for the bank in view of ‘high net non-performing assets and negative return on assets’. The bank added that the action will not have any material impact on the performance of the bank and will contribute to improving the internal controls of the bank and improvement in its activities. Earlier, similar action has been initiated against Indian Overseas Bank and United Bank of India. Banks come under RBI’s watch list if their net NPAs rise over 6%, they report losses for two years in succession and their capital adequacy is below statutory level. IDBI Bank will now have to take measures to conserve capital as further weakening of its capital base or refusal of the government to infuse capital would make it a candidate for merger. Meanwhile reports quoting Moody’s Investors Service suggested that 17 other banks could be placed under watch and there could be restrictions on paying dividends and may be asked to raise more capital after a surge in bad loan.
