IDBI Bank to be taken out of PCA framework

Reserve Bank of India has decided to take IDBI Bank out of the Prompt Corrective Action (PCA) framework, subject to certain conditions and continuous monitoring.

This development comes in the backdrop of the Union Budget announcement that the Government is working towards strategic disinvestment of its stake in IDBI Bank in FY 2022.

RBI had invoked PCA against IDBI Bank in 2017 in view of high non-performing assets and negative return on assets.

Under PCA, usually expansion of a bank’s branch is restricted and lending is narrowed to relatively less risky segments to nurse it back to health.

The Board for Financial Supervision (BFS), which reviewed the performance of IDBI Bank in its meeting held on February 18, 2021, noted that in line with the published results for the quarter ending December 31, 2020, the bank is not in breach of PCA parameters on regulatory capital, net NPA (non-performing assets) 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 RBI of the structural and systemic improvements it has put in place, which would help it in continuing to meet these commitments,” RBI said in a statement.

Life Insurance Corporation of India (LIC) is the promoter of IDBI Bank holding 49.24 per cent shareholding and Government of India is the co-promoter (without management control) holding 45.48 per cent shareholding.

Meanwhile, the bank is planning to set off accumulated losses of about Rs 44,500 crore against the balance standing to the credit of the Securities Premium Account (SPA) after the declaration of its fourth quarter (Q4FY21) financial results.

According to the Draft Scheme for setting off accumulated losses as on April 1, 2021 against SPA, this balance sheet neutral exercise of re-arrangement of liabilities will enable the bank to represent its true financial position. It will also help the bank raise resources via AT (Additional Tier) 1 Bonds in the near future as it will become eligible to make coupon payments.