RBI takes IDBI Bank out of PCA framework after lender improves finances

IDBI Bank has been under the PCA framework since 2017 because of the deterioration in its health

Private lender IDBI Bank is out of prompt corrective action (PCA) after improving its finances and credit profile, the Reserve Bank of India (RBI) said on Wednesday. This eases the rules for the lender to expand business. This also sets the stage for strategic divestment by the Government of India, which holds 45.48 per cent stake.

The RBI in a statement said its board for financial supervision had reviewed the performance of IDBI Bank at its meeting on February 18. According to published results for the quarter ended December 31, 2020, the bank is not in breach of the PCA parameters on regulatory capital, net non-performing assets (NPAs), and leverage ratio.

IDBI Bank had been under the PCA framework since 2017. The PCA regime places curbs on big-ticket lending and expenditure and calls for a plan for turnaround.

The bank has furnished a written commitment saying it would comply with the norms of minimum regulatory capital, net NPAs, and leverage ratio on an ongoing basis.

The lender has apprised the RBI of the structural and systemic improvements put in place to help it continue to meet these commitments.

Its stock closed 5.08 per cent higher at Rs 38.25 per share on the BSE.  Life Insurance Corporation of India holds 49.24 per cent stake as of December 2020.

Ashwin Parekh, managing partner, Ashvin Parekh Advisory Services, said a competent partner with domain expertise and digital banking strength should be brought in to enhance decision-making and governance at IDBI Bank. This would help it to capitalise on business opportunities, given the economy is in recovery mode.

Senior IDBI Bank executives said the exit from the PCA regime was a long time coming. The bank will now be in a position to resume normal lending activity, including corporate lending, with tightened risk management framework. At this point in time not much change in the business model is expected. But if a strategic partner happens to be a financial sector player, the business model and its policies, too, may go undergo transformation.   

IDBI Bank posted a net profit of Rs 378 crore in the third quarter (Q3) ended December 2020-21 (Q3FY21), aided by a rise in net interest income. This is the fourth consecutive quarter of profit for the lender. It had booked a net loss of Rs 5,763 crore in Q3 of 2019-20.

Its net NPAs eased to 1.94 per cent in December 2020, from 5.25 per cent in December 2019. Its capital adequacy stood at 14.77 per cent, with a common equity tier I of 12.22 per cent at the end of December 2020.