Tag: prompt corrective action

IDBI Bank eyes stake sales in subsidiaries, BFSI News, ET BFSI

Banking & Finance

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MUMBAI: IDBI Bank plans to ramp up growth, regain lost corporate customers and sell stakes in its insurance, capital markets and technology arms following its exit from the banking regulator’s prompt corrective action (PCA) framework for weak lenders.

IDBI Bank MD & CEO Rakesh Sharma told TOI that the bank had used the four-year interregnum to restructure its business, cut exposure to large loans and bulk deposits and create verticals for various lending businesses to speed up turnaround time. As a result, the institution has transformed from a project financier to a retail lender.

“While our retail portfolio grew during the moratorium period, we were not able to cater to the corporates. We are now looking at the mid-corporate segment, particularly the good companies which were our partners earlier and we could not extend loans because of restrictions under the PCA,” said Sharma.

He said that the bank was looking at Rs 4,000 crore of recoveries in the next fiscal year. In addition, it was willing to sell a 25% stake in Ageas Federal Life (formerly IDBI Federal Life) to the foreign partner if they wanted to acquire the stake once the increase in foreign direct investment (FDI) is allowed.

IDBI Fintech is a 100% subsidiary of the bank. The company provides end-to-end IT services to IDBI Bank, its group companies, its ultimate parent company LIC, as well as other external clients in the BFSI sector. The company was currently in the process of appointing merchant bankers to help identify a strategic joint venture partner. IDBI Capital Markets is the merchant banking arm of IDBI Bank and the lender is looking for a strategic partner in this company as well.

The RBI’s PCA places restrictions on weak banks from offering large loans to corporates and offering salary hikes for management and from expanding business. Sharma said that the bank did hire specialists from the market, but now that it was out of PCA it would do more lateral recruitments and continue to hire from campuses.



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

Banking & Finance

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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 Bank to be taken out of PCA framework

Banking & Finance

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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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DFS Secretary, BFSI News, ET BFSI

Banking & Finance

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The finance ministry expects the remaining three public sector banks (PSBs) to be out of the RBI’s prompt corrective action (PCA) framework in two months as their financial health has improved.

Indian Overseas Bank, Central Bank of India and UCO Bank are currently under this framework which puts several restrictions on them, including on lending, management compensation and directors’ fees.

“In fact, these three banks are also now consistently for the last two quarters… in profit and they are fulfilling by and large all the parameters of the Reserve Bank of India (RBI),” Financial Services Secretary Debasish Panda said.

In any case, he said, “they are lending, they’re doing all that businesses but there are some restraints, so that they will be out of that. So we hope that before the close of this financial year (they should be out of PCA).”

He also assured additional capital for these banks if the regulator insists as the government has cushion of the remaining amount of Rs 20,000 crore recapitalisation budget for PSBs.

“Although we believe that they are already meeting the regulatory requirement of 11.5 per cent Capital to Risk (Weighted) Assets Ratio (CRAR) so that we will take it forward and we hope that they should also come out from the PCA,” he said.

For the current financial year, the government had allocated Rs 20,000 crore for capital infusion into the PSBs for meeting the regulatory requirement.

Among the 12 PSBs, Punjab & Sind Bank was given Rs 5,500 crore.

Parliament had in September approved the Rs 20,000 crore capital infusion in PSBs as part of the first batch of Supplementary Demands for Grants for 2020-21.

With Rs 5,500 crore going to Punjab & Sind Bank, the government is left with Rs 14,500 crore.



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