Calcutta, May 14: Public sector lender Uco Bank may have fewer capital raising options through bonds as the RBI has asked it to take prompt corrective action (PCA) for failing to meet key performance benchmarks.

In April, the RBI had announced the revised PCA framework for banks, laying down thresholds in parameters such as capital, asset quality, profitability and leverage ratio. If banks hit these trigger points, the RBI can impose restrictions on the lenders' operations and even conduct targeted scrutiny and special audits.

The revised PCA framework is effective from April 2017 and will be based on the financials of a bank for the year ended March 31, 2017.

The framework empowers the regulator to ask banks to take corrective action during the course of the year if the circumstances so warrant.

In a communication to the stock exchanges, Uco Bank said the RBI through a letter dated May 5, 2017, has initiated a PCA for the bank because of its high non-performing assets (NPA) and negative return of assets.

As on March 31, 2017, the bank's net NPA ratio was 8.94 per cent. Return on assets was a negative 0.75 per cent for 2016-17 and a negative 1.25 per cent for 2015-16. Threshold level 1 of the PCA framework is triggered if the net NPA ranges between 6 per cent and 9 per cent and the return on asset is negative for two consecutive years.

The two mandatory actions that banks have to face for breaching this threshold are restrictions on the distribution of profit and onus on promoters to bring in more capital.

Dividend pause

With a net loss of Rs 1,850.67 crore as of March 31, 2017, the bank decided not to give dividend for financial year 2016-17. Uco Bank had last declared a dividend of Rs 2 per share in 2014-15.

"The dividend payment track record is one of the criterion for subscribing to additional tier-1 bonds. Skipping dividends will adversely impact the ability of banks to issue AT1 (tier-1) bonds as it will reduce the investor base available to them," research firm Icra said in a note on the impact of the revised PCA framework.

With capital levels close to breaching the threshold, the bank's board has decided to issue 75 crore equity shares in 2017-18 in one or more tranches through certain routes such as follow-on public offer, qualified institutional placement, preferential issue and employee stock options.

"These measures aim at improving performance and strengthening internal controls of the bank and will not affect the performance," the bank said in the filing.

Bank sources said the lender was likely to further exercise caution on advances and prepare a road map to check bad assets.