Based on the quarterly results of Q2 FY 2022, i.e. September 30, 2021 and the RBI's Prompt Corrective Action framework

Table of Contents


Testing methodology

There are 34 Schedule Commercial Banks (12 Public Sector Banks & 22 Private Sector Banks) and all of them were tested.

The rankings are arrived at by analyzing banks based on RBI's own formula for diagnosing unhealthy banks. It is called the Prompt Corrective Action Framework.

The four parameters of the Prompt Corrective Action (PCA) framework are

  1. Capital (CRAR and CET-1 ratios)
  2. Asset Quality (Net NPA ratio)
  3. Profitabilty (Return on assets)
  4. Leverage (Tier 1 leverage ratio)

Since these terms seem quite complex, I have broke them down for non banking folks to understand in a separate post below.

[Guide] for a layman to judge a Bank’s health
[The guide is based on the Prompt Corrective Action[https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=10921&Mode=0](PCA)framework which is how RBI judges a Bank’s health and moves in for the kill, Imean finds a suitable alliance/buyer for that bank] ---------------------------------------…
Please read this if you wish to understand how to judge a bank's health for yourself.
  • Each parameterg in the PCA framework, i.e. CRAR, Asset Quality (NNPA ratio), RoA and Leverage ratio gets equal weightage in the score.
  • Max score is 4.00
  • Even a level 1 breach in CRAR, Asset quality and Leverage ratio would mean that a bank gets 0 marks for that parameter.
  • However, I have given fractional scores for profitability (RoA) as follows:
    • If a Bank has negative RoA in FY2021, but positive RoA in the preceding year (i.e. FY2020), I have given it 0.75
    • If a Bank has negative RoA for 2 consecutive years but a positive RoA in FY2018, I have given it 0.5
    • If a Bank has negative RoA for 3 consecutive years but has a positive Roa in FY2017, I have given it 0.25
    • If a Bank has negative RoA for 4 consecutive years it gets 0.

Banks under Prompt Corrective Action Framework

[i.e. Banks who aren't in good shape according to RBI as on September 30, 2021]

Currently, Indian Overseas Bank (IOB), Central Bank of India, UCO Bank, and United Bank of India are already under this framework.

UCO Bank might exit the PCA framework thanks to Govt infusion of capital (from your taxes of course)

Central Bank likely to be out of PCA framework in some three months

It would be prudent to avoid exceeding the deposit insurance limit in these banks, atleast until they are out of the PCA framework.

What happens if a Bank is put under the PCA framework?

Within the PCA framework, RBI has three risk thresholds for banks. It carries out certain mandatory actions (described in the below table) if a bank falls into any of the three thresholds. In addition, it may make further discretionary actions at all three thresholds depending on the seriousness of the situation. You can read more about it on the RBI circular.

Risk Thresholds for Banks as per RBI PCA Framework

Specifications Mandatory actions
Risk Threshold 1 [RT1] Restriction on dividend distribution/remittance of profits. Promoters/owners/parent in the case of foreign banks to bring in capital
Risk Threshold 2 [RT2] 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 [RT3] 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

Ranking

[Updated for Q2 - September 30, 2021. You can check individual parameters for your bank in this spreadsheet. Max score that a bank can achieve is 4.00)]

Bank Name Score Comments
Axis   Bank Ltd 4.00 Meets all RBI PCA parameters as   per the latest available results
Catholic Syrian Bank Ltd 4.00 Meets all RBI PCA parameters as   per the latest available results
City Union Bank Ltd 4.00 Meets all RBI PCA parameters as   per the latest available results
Development Credit Bank 4.00 Meets all RBI PCA parameters as   per the latest available results
Dhanlaxmi Bank Ltd 4.00 Meets all RBI PCA parameters as   per the latest available results
Federal Bank Ltd 4.00 Meets all RBI PCA parameters as   per the latest available results
HDFC Bank Ltd 4.00 Meets all RBI PCA parameters as   per the latest available results
ICICI Bank Ltd 4.00 Meets all RBI PCA parameters as   per the latest available results
IndusInd Bank Ltd 4.00 Meets all RBI PCA parameters as   per the latest available results
Jammu & Kashmir Bank Ltd 4.00 Meets all RBI PCA parameters as   per the latest available results
Karnataka Bank Ltd 4.00 Meets all RBI PCA parameters as   per the latest available results
Karur Vyasa Bank Ltd 4.00 Meets all RBI PCA parameters as   per the latest available results
Kotak Mahindra Bank Ltd 4.00 Meets all RBI PCA parameters as   per the latest available results
RBL Bank Ltd 4.00 Meets all RBI PCA parameters as   per the latest available results
South Indian Bank Ltd 4.00 Meets all RBI PCA parameters as   per the latest available results
Yes Bank Ltd 3.50 Made losses in FY2020   & FY2021
Bandhan Bank 4.00 Meets all RBI PCA parameters as   per the latest available results
IDFC First Bank Ltd 4.00 Meets all RBI PCA parameters as   per the latest available results
State Bank of India 4.00 Meets all RBI PCA parameters as   per the latest available results
Bank of Baroda 4.00 Meets all RBI PCA parameters as   per the latest available results
Bank of India 4.00 Meets all RBI PCA parameters as   per the latest available results
Bank of Maharashtra 4.00 Meets all RBI PCA parameters as   per the latest available results
Canara Bank 4.00 Meets all RBI PCA parameters as   per the latest available results
Indian Bank 4.00 Meets all RBI PCA parameters as   per the latest available results
Indian Overseas Bank 4.00 Meets all RBI PCA parameters as   per the latest available results
Union Bank of India 4.00 Meets all RBI PCA parameters as   per the latest available results
UCO Bank 4.00 Meets all RBI PCA parameters as   per the latest available results

Notes

  • SBI, HDFC and ICICI are the safest banks by virtue of being declared too big to fail by RBI. It doesn't hurt that they are also financially healthy as well.
  • Some banks had not made certain data available yet as the time of this writing. As it is not possible to make a comparision without that data, I have not scored them. If it is updated after this is published, please do reach out to me and I'll update them.
  • Tamilnadu Mercantile Bank Ltd, Punjab National Bank, Punjab & Sind Bank, Central Bank of India, IDBI Bank & Nainital Bank Ltd have not made their BASEL III disclosures (including leverage ratio) available yet for Q2 FY2022.

Despite popular request, I have left out foreign banks and small finance banks for this quarter as it is difficult to get hold of their data.

Feel free to share this with your friends and family who might benefit from knowing the status of their Bank's health. Do reach out to me in case of queries or errors, if any.


References

  1. https://www.axisbank.com/shareholders-corner/financial-results-and-other-information/quarterly-results
  2. https://www.csb.co.in/investor-relations
  3. https://www.cityunionbank.com/investor/about-cub/quarterly-results
  4. https://www.dcbbank.com/pdfs/DCB-Bank-Announces-Third-Quarter-Results-FY-2020-21-Mumbai-January-23-2021.pdf
  5. https://www.dhanbank.com/investor_relations/inv_financials.aspx
  6. https://www.federalbank.co.in/financial-result
  7. https://www.hdfcbank.com/personal/about-us/investor-relations/financial-results
  8. https://www.icicibank.com/aboutus/qfr.page?#toptitle
  9. https://www.indusind.com/in/en/investors/investor-landing.html
  10. https://www.jkbank.com/investor/financials/earningsUpdates.php
  11. https://karnatakabank.com/investor-portal/financial-results
  12. https://www.kvb.co.in/about-us/financial-performance/
  13. https://www.kotak.com/en/investor-relations/financial-results/quarterly-results.html
  14. https://www.nainitalbank.co.in/english/Financial_Highlights.aspx
  15. https://ir.rblbank.com/
  16. https://www.southindianbank.com/content/financial-results/904
  17. https://www.tmb.in/financial-performance-highlights.aspx
  18. https://www.yesbank.in/about-us/investors-relation/financial-information/financialresults
  19. https://www.bandhanbank.com/Financial-results.aspx
  20. https://www.idfcfirstbank.com/Investor-relation/financial-results.html
  21. https://idbibank.in/idbi-bank-financial-result.asp
  22. https://sbi.co.in/web/investor-relations/reports
  23. https://www.bankofbaroda.in/financial-reports.htm
  24. https://www.bankofindia.co.in/FinancialResult
  25. https://www.bankofmaharashtra.in/financial_results
  26. https://canarabank.com/User_page.aspx?othlink=379
  27. https://www.centralbankofindia.co.in/English/investor_relation.aspx
  28. https://www.indianbank.in/departments/financial-results/#!
  29. https://www.iob.in/Financial_perf
  30. https://www.pnbindia.in/financials-current.html
  31. https://www.psbindia.com/content/financial
  32. https://www.unionbankofindia.co.in/english/financial-result.aspx
  33. https://www.ucobank.com/english/quarterly-results.aspx