The action would mean the Mumbai-based lender would face restrictions on lending activity. BOI, where the government holds 75.1 per cent stake, will also have to step up efforts on recoveries from stressed assets, sale of non-core assets, and control costs.
Reacting to the development, the BOI stock fell by four per cent to Rs 174 per share at the close of trading on the BSE.
BOI is the first among large banks to be placed under PCA. It joins the pack of state-owned banks such as IDBI Bank, Central Bank of India, Dena Bank, Bank of Maharashtra, and Indian Overseas Bank, which are already under the PCA framework.
In its filings with the stock exchanges, BOI said the PCA was triggered by the high level of net non-performing assets (NPAs), insufficient common equity tier 1 capital (CET1), and negative return on assets (RoA) for two consequent years.
Reflecting the weak profile, its gross NPAs stood at 12.62 per cent and net NPAs at 6.47 per cent at the end of September 2017. The CET1 stood at 7.21 per cent. Its RoA was negative for the past two financial years.
Dinabandhu Mohapatra, managing director and chief executive, said the bank has been working on a turnaround plan for the last six months, following a memorandum of understanding with the government, its majority shareholder.
“The priority has been on controlling costs through steps like rationalisation of branch and ATM network, and rebalancing of loan portfolio by increasing share of retail loans,” he added.
The bank continued to be under stress, with fresh slippages remaining high during FY17 and this year. While there was an improvement in recoveries and upgradations, the bank’s gross and net NPAs remained elevated.
Rating agency Icra in a note said it took comfort from the bank’s high provision coverage ratio (52.23 per cent as on March 31, 2017, against public sector banks’ average of 43.1 per cent and banking sector average of 43.6 per cent). This strengthens the bank’s ability to absorb any significant future losses.
Notwithstanding the capital infusion from the government, its capitalisation has remained weaker than that of other similar-rated peer banks. The government infused Rs 2,838 crore in FY17 and Rs 3,605 crore in FY16. The bank’s capitalisation was also supported by the Rs 2,500 crore additional tier I bonds raised during FY17.