DENA : THE LENDER THAT DOESN’T LEND COMMERCIAL BANKING- FIN 6002

Gopika Jain: 17F313 Kartik S: 17F322 Prashant Goel: 17F331 Vivek Vishnoi: 17F353 ABOUT DENA BANK

➢ The bank was founded in 1938 and the Indian government nationalized it in 1969. ➢ Dena Bank is headquartered in and it has 1874 branches

Dena Bank has been the first Bank to introduce: ➢ Minor Savings Scheme ➢ Credit card in rural India known as "DENA KRISHI SAKH PATRA" (DKSP) ➢ Drive-in ATM counter of Juhu, Mumbai ➢ Smart card at selected branches in Mumbai ➢ Customer rating system for rating the Bank Services SOLVENCY PROBLEM

Cash and gilts Cash and gilts

Safer Loans Safer Loans Debt Debt

Riskier Loan Riskier Loan

Capital Capital

Assets Liabilities Assets Liabilities and Capital and Capital NON PERFORMING ASSETS (NPA) Dena Bank NPA Return on Asset 18000 1

16000 0.5

14000 0 12000 -0.5 10000 -1 8000 -1.5 6000

-2 4000

2000 -2.5

0 -3 Mar-14 Mar-15 Mar-16 Mar-17 Mar-18 Mar-14 Mar-15 Mar-16 Mar-17 Mar-18 Gross NPA 2616.03 4393.04 8560.49 12618.73 16361.44 Return on Asset 0.51 0.22 -1.02 -0.67 -2.59 CURRENT SCENARIO LOAN BOOK OF DENA BANK

Loan Book 100000

90000 80000 The RBI had asked the bank to stop 70000 all fresh lending in May 60000

50000

40000

30000

20000

10000

0 Mar-12 Mar-13 Mar-14 Mar-15 Mar-16 Mar-17 Mar-18 Jun-18 Loan Book 57159 66457 78622 80629 85811 77538 74239 69700

Loan Book PROMPT CORRECTIVE ACTION (PCA)

WHAT IS PCA? ▪ RBI has put in place some trigger points to assess, monitor, control and take corrective actions on which are weak and troubled. ▪ RBI has set trigger points on the basis of CRAR (a metric to measure balance sheet strength), NPA and ROA.

WHAT WILL A BANK DO IF PCA IS TRIGGERED? ▪ Banks are not allowed to renew or access costly deposits or take steps to increase their fee-based income ▪ RBI will also impose restrictions on the bank on borrowings from interbank market

WHY PCA? ▪ Due to the adverse impact on the economy , medium sized or large banks are rarely closed and the governments try to keep them afloat. ▪ If banks are not to be allowed to fail, it is essential that corrective action is taken well in time when the bank still has adequate cushion of capital to minimize the losses PCA BEFORE 2017

CRA NP RO R As A

➢ CRAR less than 9%, ➢ Net NPAs over 10% ➢ Internationally 1% ROA is but equal or more but less than 15% considered as a benchmark. than 6% ➢ Net NPAs 15% and ➢ 1998-99 results of banks ➢ CRAR less than 6%, above show a very sharp decline in but equal or more ROA than 3% ➢ In view of such sharp ➢ CRAR less than 3 variations in ROA. Keeping in view Indian reality, a trigger point of below 0.25% has been proposed. REVISED PCA MATRIX

PCA matrix - Areas, indicators and risk thresholds Indicator Risk Threshold 1 Risk Threshold 2 Risk Threshold 3 Area Capital Current minimum RBI prescription <10.25% but >=7.75% <7.75% but >=6.25% NA (Breach of either CRAR or of 10.25% And/ Or CET 1 ratio to trigger Common Equity Tier 1 (CET 1min) And/or And/or And/or PCA) current minimum RBI prescription of 6.75% <6.75% but >= 5.125% <5.125% but >=3.625% <3.625%

(Breach of either CRAR or CET 1ratio to trigger PCA)

Asset Quality Net Non-performing advances >=6.0% but <9.0% >=9.0% but < 12.0% >=12.0% (NNPA) ratio Profitability Return on assets (ROA) Negative ROA for two Negative ROA for Negative ROA for consecutive years three consecutive four consecutive years years Leverage Tier 1 Leverage ratio (Core <=4.0% but > = 3.5% < 3.5% (leverage is over capital/Total assets) (leverage is over 25 times the Tier 28.6 times the Tier 1 1 capital) capital) GROSS BAD LOANS OF BANK UNDER PCA

Gross NPA (Rs crore) Gross NPA Ratio

IDBI Bank 51368 24.98% Indian Oversea Bank 34709 22.73% UCO Bank 24435 19.74% United Bank 12893 18.8% Bank of 17239 18.54% of India 31641 17.27% Dena Bank 13201 17.23% Oriental Bank of Commerce 26432 16.3% 20685 15.28% 21454 14.1% 49307 12.62% PCA- MANDATORY AND DISCRETIONARY ACTIONS

Mandatory and discretionary actions Specifications Mandatory actions Discretionary actions Risk Threshold 1 Restriction on dividend distribution/remittance of Common menu profits. Special Supervisory Interactions Promoters/owners/parent in the case of foreign banks Strategy related to bring in capital Governance related Risk Threshold 2 Capital related In addition to mandatory actions of Threshold 1, Credit risk related Restriction on branch expansion; domestic and/or Market risk related overseas HR related Higher provisions as part of the coverage regime Profitability related Risk Threshold 3 In addition to mandatory actions of Threshold 1, Operations related Restriction on branch expansion; domestic and/or Any other overseas Restriction on management compensation and directors’ fees, as applicable REFERENCE

 https://rbi.org.in/scripts/NotificationUser.aspx?Mode=0&Id=10921  https://www.google.co.in/amp/s/www.thehindubusinessline.com/money-and-banking/dena-bank- expects-a-turnaround-by-june-2018/article9828709.ece/amp/  https://www.motilaloswal.com/article_new.aspx/1231/What-does-Prompt-Corrective-Action- (PCA)-mean-for-PSU-banks  https://www.financialexpress.com/industry/banking-finance/rbi-puts-dena-bank-under-prompt- corrective-action/1164485/ Bhikari nhi hai apun, Bahut paisa hai apne paas