The Reserve Bank of India (RBI) on Wednesday stated IDBI Bank has been taken out of the prompt corrective action (PCA) framework, topic to certain situations. The Life Insurance Corporation of India (LIC)-owned lender has provided the regulator a written commitment that it shall comply with the norms of minimum regulatory capital, terrible assets and leverage ratio on an ongoing basis.
IDBI Bank’s exit from PCA is a essential step towards carrying out the government’s bank privatisation programme, as it is one of the lenders identified for sale. The bank had been barred from growing its danger-weighted assets — in other words, producing substantial advances — in May 2017. Its departure from the lending quarantine comes immediately after successive lucrative quarters, even as its gross non-performing asset (NPA) ratio stood at an elevated 23.52% at the finish of December 2020.
The RBI stated that the functionality of IDBI Bank was reviewed by the board for monetary supervision (BFS) in its meeting held on February 18. “It was noted that as per published results for the quarter ending December 31, 2020, the bank is not in breach of the PCA parameters on regulatory capital, Net NPA and Leverage ratio. The bank has provided a written commitment that it would comply with the norms of minimum regulatory capital, Net NPA and Leverage ratio on an ongoing basis and has apprised the RBI of the structural and systemic improvements that it has put in place which would help the bank in continuing to meet these commitments,” the central bank stated. Taking all the above into consideration, it was decided that the bank be taken out of the PCA framework, topic to particular situations and continuous monitoring.
Technically classified as a private bank immediately after its takeover by LIC, IDBI Bank continues to struggle with recoveries from stressed corporate NPAs. With aggressive provisioning, even though, the bank has managed to lower its net NPA ratio to 1.94% in Q3FY21. Had it classified borrower accounts as NPA immediately after August 31, 2020, in the absence of an interim judicial order, its pro forma gross NPA ratio and pro forma net NPA ratio would have been 24.33% and 2.75%, respectively. The provision coverage ratio (PCR) enhanced to 97.08% as on December 31, 2020 from 95.96% as on September 30, 2020.
The bank’s management had stated in January that it had turn into compliant with all parameters essential to exit the PCA framework. Its capital to danger-weighted assets ratio (CRAR), which includes countercyclical buffer (CCB) stood at 14.77%, against the regulatory minimum of 11.5%. Its net NPA ratio was at 1.94% against a essential 6%, and its return on assets (RoA) for Q3 stood at .51%. Its leverage ratio stood at 5.71%, as against a minimum of 4%.
Gross advances fell 7% year-on-year (y-o-y) to Rs 1.6 lakh crore as on December 31, 2020. Retail loans accounted for 60% of the total loan book, with the rest getting corporate loans. IDBI Bank’s total deposits rose 2.85% y-o-y to Rs 2.24 lakh crore at the finish of December 2020. The share of existing accounts savings accounts (CASA) in total deposits was 48.97% as on December 31, 2020.