Indian Overseas 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, RBI says
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State-owned Indian Overseas Bank (IOB) will no longer be subject to strict lending curbs imposed by the Reserve Bank of India (RBI) in October 2015, as the central bank said on Wednesday that the lender has been taken out of the prompt corrective action (PCA) restrictions.
Following its exit, only Central Bank of India remains under PCA. RBI uses PCA framework to rein in banks that have breached certain regulatory thresholds in bad loans and capital adequacy. PCA entails curbs on high-risk lending, setting aside more money on provisions and restrictions on management salary.
Indian Overseas Bank, RBI said, 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. The lender has also 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.
“The performance of the Indian Overseas Bank, currently under the Prompt Corrective Action Framework of RBI, was reviewed by the board for financial supervision. It was noted that as per its published results for the year ended 31 March 2021, the bank is not in the breach of the PCA parameters," RBI said.
As on 31 March, IOB’s net NPA ratio stood at 3.58%, down 186 basis points (bps) from the same period last year. Its total capital adequacy ratio under Basel III was at 15.32%, up 460 bps from Q4 of FY20.
RBI governor Shaktikanta Das said on 6 August that it has been taking banks out of the restrictive framework based on assessments.
“We keep on reviewing that position. Recently, we removed one public sector bank from PCA tag. And as and when required requests are received, we analyse it, if it meets RBI’s regulatory requirements and if in our assessment, we feel confident that it’s a fit case, the RBI will do the needful. So, we have been taking banks out of PCA," said Das.
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.