Home / Industry / Banking /  RBI takes IDBI Bank out of prompt corrective action list

The Reserve Bank of India today said that it has taken IDBI Bank Ltd out of its prompt corrective action list after it found the state-run lender was not in breach of the central bank's parameters.

"The performance of IDBI Bank Limited, currently under the Prompt Corrective Action Framework (PCAF) of RBI, was reviewed by the Board for Financial Supervision (BFS) in its meeting held on February 18, 2021. 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 RBI said.

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

IDBI Bank was placed under the so-called PCA framework in 2017 over its high bad loans and negative return on assets, at a time when Indian lenders battled record levels of soured assets, prompting the RBI to tighten thresholds.

IDBI Bank's gross bad loan ratio, which was among the highest in Indian banks, has eased in recent quarters, standing at 23.52% as of end-December.

Shares of IDBI Bank have lost more than 50% of their value since RBI brought it under the framework in 2017.

Meanwhile, LIC-controlled IDBI Bank will set off its accumulated losses worth 45,586 crore against the balance in the securities premium account, according to the bank''s draft scheme.

Its accumulated losses (or debit balance of profit or loss account) at the end of March 31, 2020, stood at 45,586 crore. And, they were at 44,739 crore as on December 31, 2020.

The accumulated losses as at March 31, 2021, shall be ascertained after the audited financial statements are approved by the bank''s board, said the lender, as per the draft scheme addressed to its shareholders for setting off the accumulated losses.

The bank''s authorised share capital is 25,000 crore.

The issued, subscribed and paid-up share capital is worth 10,752.40 crore and the security premium is of 50,732.27 crore.

Meanwhile, the IDBI Bank said the balance standing to the credit of securities premium account of the bank as per audited financial statements for FY20 and as on April 1, 2020, is 49,669 crore.

The said the balance as on December 31, 2020, stood at 50,718 crore as per the unaudited financial statements.

"The balance standing to the credit of securities premium account as on March 31, 2021, shall be ascertained after the audited financial statements are approved by the board of directors of the bank," it added.

Last month, its board had approved a proposal of setting off the lender''s accumulated losses by April 1, 2021, in full or partially, by using the balance in the securities premium account.

Giving reasons for the move, the lender had said the accumulated losses have wiped off its value represented by the share capital.

"In view of the accumulated losses, the distributable items, in terms of RBI''s notification dated February 2017, are negative, and the bank is not eligible to make coupon payment of AT (additional tier)-1 bonds," it had said.

This is affecting the bank''s plan to raise AT1 bonds in the near future, it said adding that it believes reducing the share capital is the most practical and economically efficient option so as to present a true and fair view of the financial position of the bank.

Representation of true value would benefit members as their holding will yield better value and also enable the bank to explore opportunities to benefit the members, including in the form of dividend payout within a reasonable timeframe, IDBI Bank had said.

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