RBI tightens screws on banks to mollify bad debts

The Reserve Bank of India is tightening the screws on banks with a fresh set of "Prompt corrective action" guidelines, which it has released, to address the bad loans.

As reported in a national business daily, RBI is aiming at placing some strict restrictions on weak banks by cracking down on branch expansion and even promoter compensation, via these rules.

According to the guidelines, any bank with net NPAs between 6% to 9% of their total loan book, and a negative return on assets for two straight years, may have to face restrictions on dividend and profit remittances.

The banks with a net NPA between 9% to 12% and three straight years of negative returns will have to face some restrictions in terms of branch expansions.

While, the banks with net NPA over 12% and four straight years of negative Return on Assets (RoAs) may see restrictions on management's compensation.