At least 10 out of the 22 public-sector banks might freeze branch expansion this fiscal and make higher provisioning for bad loans, while 16 lenders are unlikely to give dividends for the just concluded FY17.

This is part of the mandatory actions that banks have to comply with under RBI’s revised Prompt Corrective Action (PCA) framework announced on Thursday. If banks deploy prudence, discretionary measures like halt in hiring, branch rationalisation, sale of assets and reduced capital expenditure, too, could kick in.

At 16 banks, net NPAs as a percentage of advances could exceed six per cent for FY17, breaching PCA’s first risk threshold and may have to forego dividend payout. Ten banks may fall under the next bracket with net NPAs ranging between nine and 12 per cent and may have to self-impose restrictions on branch expansion besides others. Some of these include Indian Overseas Bank, Bank of Maharashtra, and IDBI.

Typically, RBI invokes PCA on banks breaching limits, but this time, the central bank was explicit in its communication. These guidelines effective from April (based on FY17 data) will apply without exception to all banks breaching risk thresholds, it said in the notification.

Revised after a gap of 15 years, the PCA framework assesses risk using four parameters —capital, asset quality (NPAs), profitability and leverage — categorised under three risk thresholds. For every trigger point, a set of mandatory and discretionary actions are laid down to pre-empt deterioration in the soundness of banks.

“If you take December 2016 data as a proxy, several banks could breach on the asset quality front,” Karthik Srinivasan, senior vice-president and group head – financial-sector ratings, ICRA told Express, adding that a few banks incurred losses in FY16 and will likely report negative returns in FY17.

According to fresh norms, banks incurring losses for two years could attract RBI intervention. RBI may also impose PCA on any bank if circumstances so warrant, like it did in the case of IOB in October 2015, mandating branch rationalisation, and other strategy, capital and governance-related measures.

Nevertheless, IOB’s net NPAs hit a threshold and could attract severe action including restrictions on management compensation and directors’ fee.#casansaar (New Indian Express)