DENA BANK: THE LENDER THAT DOESN T LEND

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1 DENA BANK: THE LENDER THAT DOESN T LEND COMMERCIAL BANKING- FIN 6002 Gopika Jain: 17F313 Kartik S: 17F322 Prashant Goel: 17F331 Vivek Vishnoi: 17F353

2 ABOUT DENA BANK The bank was founded in 1938 and the Indian government nationalized it in Dena Bank is headquartered in Mumbai 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

3 SOLVENCY PROBLEM Cash and gilts Cash and gilts Safer Loans Debt Safer Loans Debt Riskier Loan Riskier Loan Capital Capital Assets Liabilities and Capital Assets Liabilities and Capital

4 NON PERFORMING ASSETS (NPA) Dena Bank NPA Return on Asset 0 Mar-14 Mar-15 Mar-16 Mar-17 Mar-18 Gross NPA Mar-14 Mar-15 Mar-16 Mar-17 Mar-18 Return on Asset

5 CURRENT SCENARIO

6 LOAN BOOK OF DENA BANK Loan Book The RBI had asked the bank to stop all fresh lending in May Mar-12 Mar-13 Mar-14 Mar-15 Mar-16 Mar-17 Mar-18 Jun-18 Loan Book Loan Book

7 PROMPT CORRECTIVE ACTION (PCA) WHAT IS PCA? RBI has put in place some trigger points to assess, monitor, control and take corrective actions on banks 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

8 PCA BEFORE 2017 CRA R CRAR less than 9%, but equal or more than 6% CRAR less than 6%, but equal or more than 3% CRAR less than 3 NP As Net NPAs over 10% but less than 15% Net NPAs 15% and above RO A Internationally 1% ROA is considered as a benchmark results of banks show a very sharp decline in ROA In view of such sharp variations in ROA. Keeping in view Indian reality, a trigger point of below 0.25% has been proposed.

9 REVISED PCA MATRIX Area Capital (Breach of either CRAR or CET 1 ratio to trigger PCA) PCA matrix - Areas, indicators and risk thresholds Indicator Risk Threshold 1 Risk Threshold 2 Risk Threshold 3 Current minimum RBI prescription of 10.25% And/ Or Common Equity Tier 1 (CET 1min) current minimum RBI prescription of 6.75% (Breach of either CRAR or CET 1ratio to trigger PCA) <10.25% but >=7.75% And/or <6.75% but >= 5.125% <7.75% but >=6.25% And/or <5.125% but >=3.625% NA And/or <3.625% 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 consecutive years Negative ROA for three consecutive years Negative ROA for four consecutive years Leverage Tier 1 Leverage ratio (Core capital/total assets) <=4.0% but > = 3.5% (leverage is over 25 times the Tier 1 capital) < 3.5% (leverage is over 28.6 times the Tier 1 capital)

10 GROSS BAD LOANS OF BANK UNDER PCA Gross NPA (Rs crore) Gross NPA Ratio IDBI Bank % Indian Oversea Bank % UCO Bank % United Bank % Bank of Maharashtra % Central Bank of India % Dena Bank % Oriental Bank of Commerce % Corporation Bank % Allahabad Bank % Bank of India %

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

12 REFERENCE (PCA)-mean-for-PSU-banks

13 Bhikari nhi hai apun, Bahut paisa hai apne paas

RBI/ /276 DBS.CO.PPD. BC.No.8/ / April 13, 2017

RBI/ /276 DBS.CO.PPD. BC.No.8/ / April 13, 2017 RBI/2016-17/276 DBS.CO.PPD. BC.No.8/11.01.005/2016-17 April 13, 2017 All Scheduled Commercial Banks (Excluding Regional Rural Banks) Madam/ Dear Sir Revised Prompt Corrective Action (PCA) Framework for