Tag: pca

Post exit from PCA framework, IDBI Bank to focus on improving efficiency ratios, says MD, BFSI News, ET BFSI

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Having emerged from regulatory restrictions recently, IDBI Bank is now looking at growing business in a calibrated way with more focus on profitability and in improving efficiency ratios, its Managing Director and CEO Rakesh Sharma said. On March 10, the Reserve Bank of India (RBI) removed the LIC-controlled bank from its prompt corrective action (PCA) framework, which was imposed in May 2017, after it had breached certain regulatory thresholds, including capital adequacy, asset quality and profitability.

“With restrictions imposed by RBI gone, we will like to go in a calibrated way and grow the business in a more profitable fashion so that my efficiency ratios improve. Our revenue, profitability and other ratios will certainly show improvement,” Sharma told in an interaction.

He said in the fiscal 2021-22, the bank will be targeting to improve net interest margin (NIM) to 3 per cent, return of assets (ROA) at above 0.60-0.70 and cost to income ratio to below 50 per cent.

In the nine months ended December 2020, its NIM stood at 2.79 per cent and cost to income at 54 per cent.

“The depositors will now be seeing the strength of the bank. The bad phase is over and the bank is sufficiently strong,” he said.

Sharma said during the last four years, when the bank was under PCA, the focus was on retail and priority sector lending. Currently, the share of retail loans in the bank’s total advances is 60 per cent and that of corporate loans is 40 per cent.

“Going forward we will not be stopping corporate business. We will start doing corporate business and will continue to do retail business. It will be a retail-focussed bank,” he said.

During FY22, the bank is expecting around 8-10 per cent growth in mid and large corporate loan segments, and 12 per cent growth in retail and priority sector loans, he said.

Besides loan against property (LAP), the bank now wants to develop personal loans and gold loans portfolio, where it has a small exposure at present, Sharma said.

The bank doesn’t see much stress in its loan book going ahead due to the better asset quality.

“Due to Covid, we could see minor stress in accounts. But the type of assets that we have built up in our bank, I don’t foresee any problem,” Sharma said.

Overall slippages in fiscal 2020-21 and the next fiscal will be less than 2 per cent, he added.

In FY22, the bank is targeting a total recovery of Rs 3,500-4,000 crore.

Sharma said the bank is well capitalised and there is no immediate need for raising funds.

As of end-December 2020, the bank’s total capital-to-risk weighted assets ratio (CRAR) stood at 14.77 per cent.



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IOB, Central Bank on privatisation shortlist, may exit PCA, BFSI News, ET BFSI

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After IDBI Bank’s exit from Reserve Bank of India‘s prompt corrective action, chances of the other three lenders — Indian Overseas Bank (IOB), UCO Bank and Central Bank of India — to exit the stringent RBI norms have brightened.

According to reports, Indian Overseas Bank and Central Bank of India are among the four banks shortlisted by the government for privatisation. Bringing the banks out of PCA could boost their valuations in the event of privatisation.

The PCA status

All three banks under PCA Indian Overseas Bank, UCO Bank and Central Bank have reported net non-performing assets (NPAs) below levels that trigger PCA. However, on the proforma net NPA front, Central Bank falls short as its NNPA is 6.58% against the 6% required to be out of PCA.

Even after PCA exit, these banks may still be under RBI watch. In the case of IDBI Bank, which has committed to comply with the norms of minimum regulatory capital, net NPA and leverage ratio on an ongoing basis, RBI has said the lender would be under continuous monitoring. “It has been decided that IDBI Bank be taken out of PCA framework, subject to certain conditions and continuous monitoring,” RBI had said.

Privatisation bid

Reuters had earlier reported quoting officials that the four banks on the shortlist are Bank of Maharashtra, Bank of India, Indian Overseas Bank and the Central Bank of India.

Two public sector banks and one general insurance company are expected to be disinvested this year in addition to the divestment of IDBI Bank, Finance Minister Nirmala Sitharaman had announced during Budget presentation last month.

IDBI Bank

IDBI Bank, which met the Reserve Bank of India’s parameters, was brought out of PCA. The government wants to sell its about 48% stake in IDBI Bank to strategic investors while the current promoter Life Insurance Corporation is also slated to pare its holding. LIC is planning to come out with an IPO and This will give the strategic investor a controlling stake in the bank

As on December 30, 2020, LIC held a 49.24 per cent stake in IDBI Bank while 45.48 per cent was with the central government.

How does PCA work?

PCA is based on the trigger points of CRAR (a metric to measure balance sheet strength), NPA and ROA, with three risk threshold levels (1 being the lowest and 3 the highest). Banks with capital to risk-weighted assets ratio (CRAR) of less than 10.25% but more than 7.75% fall under threshold 1. Those with CRAR of more than 6.25% but less than 7.75% fall in the second threshold. In case a bank’s common equity Tier 1 (the bare minimum capital under CRAR) falls below 3.625%, it comes under the third threshold level. Banks having a net NPA of 6% or more but less than 9% fall under threshold 1, and those with 12% or more fall under the third threshold level. On return on assets, banks with a negative return on assets for two, three and four consecutive years fall under threshold 1, threshold 2 and threshold 3, respectively.



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RBI pulls IDBI Bank out of the PCA framework, bank to resume normal lending, BFSI News, ET BFSI

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The Reserve Bank of India (RBI) on Wednesday said IDBI Bank has been taken out of the prompt corrective action (PCA) framework after it found the state-run lender was not in breach of its rules on regulatory capital, bad loans and leverage ratio.

The Life Insurance Corporation of India (LIC)-owned lender has given the regulator a written commitment that it shall comply with the norms of minimum regulatory capital, bad assets and leverage ratio on an ongoing basis. Coming out of the PCA framework would allow the bank to resume it’s normal lending operations including corporate loans.

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.

The RBI said that the performance of IDBI Bank was reviewed by the board for financial supervision (BFS) in its meeting held on February 18. After taking everything into consideration, it was decided that the bank be taken out of the PCA framework.

“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 bank 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,” the central bank said.

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.

IDBI Bank had met three out of four key criteria needed to exit the prompt corrective action framework. IDBI Bank’s gross bad loan ratio, which was among the highest, has also eased in recent quarters, standing at 23.52% as of end-December.

  • Technically classified as a private bank after its takeover by LIC, IDBI Bank continues to struggle with recoveries from stressed corporate NPAs. However, with aggressive positioning, Net NPA ratio has improved to 1.94% against 5.25%.
  • Provision Coverage Ratio, a key financial parameter, improved to 97.08% in the third quarter from 92.41% in the previous fiscal
  • Its leverage ratio has also surpassed the 4% threshold and currently stands at 5.71%.

Its capital to risk-weighted assets ratio (CRAR), including counter cyclical buffer (CCB) stood at 14.77%, against the regulatory minimum of 11.5%. It’s return on assets (RoA) for Q3 stood at 0.51%. Retail loans accounted for 60% of the total loan book, with the rest being corporate loans. IDBI Bank’s total deposits rose 2.85% y-o-y to Rs 2.24 lakh crore at the end of December 2020. The share of current accounts savings accounts (CASA) in total deposits was 48.97% as on December 31, 2020.

However, shares of IDBI Bank have lost more than 50% of their value since RBI brought it under the framework in 2017. They have surged sharply since the federal budget in February on expectations New Delhi intends to sell its stake in the bank to help India’s depleted coffers.



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IDBI exits RBI’s list of lenders facing curbs, BFSI News, ET BFSI

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Mumbai: IDBI Bank has finally managed to get out of the Reserve Bank of India’s (RBI’s) watchlist for troubled banks after four years. With this, the bank is no longer subject to the restriction on large loans, dividend payment, expansion of business or salary hikes. The move comes at a time when the government has announced its intent to divest stake in the bank as part of its privatisation programme.

The RBI had first placed IDBI Bank under its prompt corrective action (PCA) framework in May 2017 after it exceeded the limits set by the central bank for bad loans and its capital position weakened. Since then, the government sold its stake to LIC, which invested Rs 21,524 crore in the bank to pick up a 49.2% stake. The government retained45.5%.

LIC’s investment in the bank continues to be in the red even after an over 5% rise in the bank’s share price to over Rs 38 on Wednesday. IDBI Bank has a market valuation of Rs 41,128 crore. This values LIC’s stake at Rs 20,250 crore.

The bank has been held back because of the PCA framework as its expertise lay in its legacy business of project and corporate loans, which it was barred from under the restrictions.

According to the RBI, the performance of IDBI Bank was reviewed by the financial supervision board on February 18, 2021. The board considered the results for the quarter ended December 2020, where the bank had reported a net profit of Rs 378 crore and qualified to exit the RBI’s PCA framework.

IDBI Bank also provided a written commitment to the RBI, stating that it would ensure that its financial ratios are within the prescribed parameters. It also highlighted the structural changes that have been put in place to improve the performance of the bank.

“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 said. Last month, finance ministry officials had indicated that they expected three more public sector banks — Indian Overseas Bank, Central Bank and UCO Bank — to exit the RBI’s PCA framework soon.



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IDBI Bank to be taken out of PCA framework

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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.

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IOB nets Rs 213 crore profit; says it’s matter of time it comes out of PCA

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IOB, which was under Prompt Corrective Action (PCA), said it has been posting profits for four consecutive quarters and almost fulfilled all the requirements to come out of the PCA.

Chennai-based public sector lender Indian Overseas Bank (IOB) on Tuesday reported a net profit of Rs 212.87 crore for the third quarter of FY21 as compared to a net loss of Rs 6,075 crore in the corresponding quarter of the previous financial year.

The bank has recorded an increase of 11.3% in its total income to Rs 5,786.54 crore as against Rs 5,197.94 crore. IOB, which was under Prompt Corrective Action (PCA), said it has been posting profits for four consecutive quarters and almost fulfilled all the requirements to come out of the PCA.

Speaking to media persons after releasing the earning performance, through virtual mode, Partha Pratim Sengupta, MD & CEO, IOB, said the bank plans to come out of PCA by focusing on recovery, low-cost deposits and less capital consuming advances.

“For the last four quarters, we have been making profit consistently. When compared with Q3 performance of FY20, there was a marked improvement in all key parameters. It is a matter of time for us to exit PCA and is up to the regulator to decide,” he said.

IOB had received a capital infusion of over Rs 8,000 crore in two tranches during the last two quarters of the last financial year, which helped the loss-making bank restart the business with a clean slate. Coupled with recovery and asset-light advances, the bank could achieve profits during the last four quarters.

The MD said there has been perceptible change in NPA levels achieved through recovery measures.

“Currently, the bank has a carry forward loss of Rs 17,500 crore. Our aim is to recover at least Rs 1,000 crore per quarter. In the first quarter of FY21, we recovered about Rs 200 crore due to lockdown, followed by Rs.760 crore and Rs 1,055 crore, respectively. Going forward, the focus will be on recovery in excess of Rs 1,000 crore and it will add to our bottom line,” he said.

According to him, IOB has evolved a policy of not taking fresh exposures in stressed sectors while the bank had exited from accounts in the stressed sectors, wherever feasible.

During the quarter, gross non-performing assets (GNPAs) reduced to Rs 16,753 crore from Rs 23734 crore and stood at 12.19% as against 17.12% and net NPA was contained at Rs 3,905 crore, as compared to 7,087 crore, which was 3.13% as against 5.81%. The provision coverage ratio improved to 91.91% from 86.20%.

While interest income contracted to Rs 4,244 crore from Rs 4,352 crore, other income rose 82.36 % to Rs 1,542.82 crore. Net interest margin stood at 2.45%.

He said around Rs 18,000 crore worth NPAs are awaiting NCLT’s resolution, while Rs 3,000 crore assets was expected to be restructured.

IOB had board’s approval to raise up to Rs 5,500 crore capital. He said the bank needed only Rs3,000 crore and the timing of the issue will be decided at a later date.

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Fourth consecutive quarter of net profit brings IDBI closer to PCA exit, BFSI News, ET BFSI

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Life Insurance Corp of India (LIC) controlled IDBI Bank expects to come out of Reserve Bank of India‘s (RBI) stringent prompt corrective action (PCA) directions at the end of this fiscal year after meeting the central bank’s last remaining parameter, CEO Rakesh Sharma said.

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.



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