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.
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