Month: January 2021

RBI’s PCA framework imposed on banks wih high NPAs and modest capital position, restricts banks from certain lending activities and curbs expenses to conserve funds.

IDBI has been under PCA since May 2017. The bank reported its fourth consecutive quarter of net profit in December 2020 after 13 straight quarters of losses. Sharma expressed confidence that the bank will move out of RBI’s restrictive directions after it records a positve return on assets in the end of the current fiscal.

“We are above all indicators put forth by RBI and next quarter we expect to record a positive return on assets for the fiscal year which will help us exit PCA very soon. Against a requirement of 8% core equity capital we are currently at 12.2% and against a requirement of 6% net NPA we are at 2.74% including loans which are yet to be classified as NPAs. The RoA is reported at the end of the fiscal and we are confident that we will move out of PCA after we record a positive number in March,” Sharma said.

Results released today showed that the bank reported its fourth consecutive quarter of net profit riding on higher net interest income (NII) mainly as cost of funds fell. The bank reported a net profit of Rs 378 crore in the quarter ended December 2020 from a loss of Rs 5,763 crore a year earlier.

NII or the difference between income earned on loans and that paid on deposits increased 18% to Rs 1810 crore from Rs1,532 crore a year earlier. Net interest margin (NIM) or the difference between the yield earned on loans and that paid on deposits improved by 60 basis points to 2.87% from 2.27% a year ago. One basis point is 0.01 percentage point.

With 23.52% gross NPAs, the bank has among the highest stressed loans in the industry though down from 28.72% a year ago. However with a provision coverage of 97.08% it has covered for most of its stress.

“There was some apprehension that the loans under moratorium will be high post Covid with about 5 to 6% restructured but we have been able to keep it at 2.5% of our book. Similarly, loans that are not classified as NPAs due to the Supreme Court (SC) order are less than 2% of standard advances,” Sharma said.

If not for the SC order the bank’s gross NPAs would have been 24.33% of its loans.

The bank’s income rose despite a 7% year on year fall in loan book to Rs 1.59 lakh crore from Rs 1.72 lakh crore a year ago mainly because cost of funds fell 99 basis points to 4.39% from 5.38% last year.

IDBI has made a total of Rs 436 crore of Covid 19 related provisions and separately made Rs 340 crore for restructure loans under the RBI framework. Another Rs 369 crore has been made for accounts not classified as NPAs due to the SC stay including Rs 84 crore for reversal of interest.

“We have already restructured Rs 704 crore of loans and another Rs 2256 crore is in the pipeline. So the total restructured loans are at Rs 2960 crore or 2.42% of standard assets much lower than the 5% to 6% which was expected,” Sharma said.

Going forward the bank expects a recovery in retail loans led by mortgages. Sharma said he expects retail loans to grow at 10% to 12% in the next fiscal year up from the 4% to 5% growth likely this year.