Catholic Syrian Bank ‘cover-up’ may attract RBI action

KOCHI: The shareholders of Catholic Syrian Bank (CSB) love to believe that the Fairfax decision to buy (own) 51 per cent stake in the bank would certainly take their bank into a different league and this has reflected in the frenetic action taking place in the grey market for CSB shares for amounts upwards of Rs180.

But the crucial question that stares analysts and major shareholders, of late, is whether the bank can escape the invocation of the prompt corrective action (PCA) from Reserve Bank of India (RBI).

While the provisions of the revised PCA framework are effective from April 1, 2017 based on the financials for the year ended March 31, 2017, the key areas that come under the scanner for monitoring will be the capital, asset quality and profitability during the past two years or more.

Broadly speaking, a negative return on assets for two consecutive years or breach of CRAR below 10.25 per cent or CET1 below 6.25 per cent could start triggering PCA according to the RBI notification. There are three levels of breach calibrated within the PCA norms – threshold 1, 2 and 3 and actions of different grades are prescribed proportionate to the intensity of the breach.

CSB, which has posted loss of Rs53.17 crore for 2014-15, Rs149.72 crore loss for 2015-16 has escaped from the jaws of loss during 2016-17 by the skin of its teeth as it closed the year with a meager net profit of Rs1.55 crore – but this 1.55 is ‘worth a million’ as it helped the bank wriggle out of the clutches of PCA invocation that time.

But a different story has started unraveling amongst key groups of investors that the Rs1.55 crore profit may have to be reversed and the bank may end up posting a loss of about Rs13.5 crore for the year 2016-17 – which is sufficient to attract PCA clause. According to sources close to the bank, CSB management has covered up certain provisions in 2016-17 financials in order to push the bank into ‘black’ (profit) and thus escape the PCA action.

An attempt by to get a proper picture with regard to this confusion from the managing director and CEO of the bank, CVR Rajendran, failed to yield any result as he has not yet responded to an email query sent yesterday.

Sources who talked to said that the bank may have to reverse certain charges debited from some inoperative accounts. “I am sure, the bank will end up reporting a loss in the region of Rs13.5 crore for the year 2016-17,” one of them said.

A loss recorded for 2016-17 will attract the clause of two years of negative return on assets.  On the capital front also, the bank is not in a very comfortable position as the possible new discovery of loss for 2016-17 could wipe out a small portion of the 11.09 per cent of capital to risk weighted asset ratio (CRAR) to settle at sub-11 per cent.

The most awaited thing would be the financial results for the nine-month ending December 31, 2017 – which are yet to be announced. Analysts this business news portal talked to are of the view that CSB would end up posting a loss of not less than Rs45 crore for this nine-month period – which might not come out before the extra general meeting (EGM) of shareholders convened on March 21, 2018 to consider the decisions regarding the Fairfax investment and the increase of authorized capital among others.

The list of banks that have fallen into the PCA action fold includes Dhanalaxmi Bank (from Kerala) IDBI, UCO Bank, Central Bank of India, Bank of Maharashtra, Indian Overseas Bank (IOB), Oriental Bank of Commerce (OBC), Dena Bank, Corporation Bank and Allahabad Bank.

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