Reserve Bank of India had placed the Chennai-based public sector lender Indian Overseas Bank under "corrective action plan".
RBI's restrictions cover administrative and branch expansion plans, but the regulator has not put any curbs on lending.
Managing Director and Chief Executive R Koteeswaran said that the bank is working on recoveries and has created a "war room" with two general managers on the job. It expects situation to improve by March-June 2016.
The bank had posted a loss in the second and third quarters of the previous financial year and is considered to have not sufficiently improved its financial health.
“RBI has initiated a prompt corrective action on the Bank (but) this will not have any material impact on the growth prospects/performance. The directions are for improving internal control and for consolidation of the activities,” IOB notified the stock exchanges.
Net profit dropped 95% during the quarter ended June to Rs 14.7 crore, from Rs 271.7 crore in the corresponding quarter last year. Net loss was Rs 454 crore in 2014-15.
A ‘prompt corrective action’ is initiated if a bank’s capital adequacy ratio (CAR) goes below nine%, its net non-performing assets (NPA) ratio goes above 10% or return on assets (RoA) falls below 0.25%.
The RoA was negative in the September and December quarters of 2014-15 and 0.02 per cent in the quarter ended June 2015.
However, the CAR and net NPA were above the threshold. The former was 9.75 per cent as of end-June and it has initiated a process to raise about Rs 2,000 crore from the government through issue of preferential shares.
Since the bank has slipped only on one account, non-credit PCA was initiated, which means there will not be any lending restriction.
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