RBI Removes UCO Bank from PCA Framework

In a significant boost for UCO Bank, the RBI has decided to move UCO Bank out of the Prompt Corrective Action (PCA) framework. UCO Bank had been brought under PCA framework in 2017 after its financials showed a lot of stress. Its net NPAs had gone as high as 8.57% and that is a typical basket case for a bank to be put under PCA.

The PCA framework puts severe restrictions on the operations of the bank so as to limit the risk burgeoning. For example, banks under the PCA framework are constrained from expanding their loan books. They are also not allowed to undertake any fresh recruitments nor pay any bonuses to the senior managerial staff. Such banks also face severe restrictions on branch network expansion and are also restricted from paying dividends to shareholders.

The decision to remove UCO Bank from the PCA framework was taken after there was a significant improvement in its financials for the Mar-21 fiscal. In addition, UCO Bank has also given an undertaking to the government that it would meet all the criterial to remain outside the PCA framework. 

UCO Bank’s net NPAs have fallen from 8.57% in Mar-17 to 3.94% as of Mar-21. In addition, the capital adequacy ratio at 14.24% was comfortable with 85% accounted for by Tier-1 capital. In the light of these systemic improvements in numbers, RBI has decided to remove UCO Bank from the PCA framework.

Apart from having a positive impact on the stock price, the removal from PCA framework will benefit in other ways too. Now, UCO Bank can once again start to expand its branch network in an aggressive manner. The bank can also pay dividends to shareholders and look for fresh senior talent. UCO Bank has been aggressive in offering one-stop services to customers, like through its recent tie-up with Fisdom for wealth management. Exiting from the PCA should help UCO Bank generate better ROI per customer.