Home / Industry / Banking /  IDBI Bank exits RBI’s corrective action list

Mumbai: IDBI Bank will no longer be subject to strict lending curbs imposed by the Reserve Bank of India (RBI) in May 2017, with the central bank Wednesday stating that the private sector lender has been taken out of the prompt corrective action (PCA) framework.

“The bank has provided a written commitment that it would comply with the norms of minimum regulatory capital, net non-performing asset (NPA) and leverage ratio on an ongoing basis and has apprised RBI of the structural and systemic improvements that it has put in place which would help the bank in continuing to meet these commitments," RBI said in a statement.

In January 2019, LIC had completed the acquisition of 51% stake in IDBI Bank, after it was approved by the Union cabinet in August 2018. However, as Mint reported in September last year, LIC is planning a gradual sale of its stake in IDBI Bank.

Besides, finance minister Nirmala Sitharaman announced in the Union budget for FY22 that the government will pare stake in two state-owned lenders apart from IDBI Bank, without specifying names. The exit from lending curbs will ease the privatization process, experts believe, and lays the ground for the government’s proposed stake sale in the lender.

As of 31 December, IDBI Bank’s net NPA stood at 1.94%, its total capital adequacy ratio under Basel III norms was at 14.77% and it reported a leverage ratio of 5.71%. PCA entails curbs on high-risk lending, setting aside more money on provisions and restrictions on management salary.

IDBI Bank’s performance, the central bank said, was reviewed by the Board for Financial Supervision (BFS) on 18 February and it was noted that as per published results for the December quarter, the bank is not in breach of the PCA parameters.

“Taking all the above into consideration, it has been decided that IDBI Bank be taken out of the PCA framework, subject to certain conditions and continuous monitoring," RBI said.

The PCA framework was introduced in December 2002 as a structured early intervention mechanism along the lines of the Federal Deposit Insurance Corp.’s (FDIC) PCA framework. These regulations were later revised in April 2017. In a speech on 12 October 2018, then RBI deputy governor Viral Acharya had defended the revised PCA norms, calling it the required medicine to prevent further haemorrhaging of bank balance sheets. He had added that in spite of their worse capitalization and stressed assets ratio compared to other banks, PCA banks had credit growth that was as strong as that of other banks up until 2014. Following IDBI Bank’s exit, Indian Overseas Bank, Central Bank of India and UCO Bank, remain under PCA.

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