RBI Removes IDBI Bank From Corrective Action Framework

The Reserve Bank of India on Wednesday said that IDBI Bank Ltd. would be allowed to exit from the regulator's corrective action framework for weak lenders after nearly four years. The regulator had placed restrictions on the bank under the prompt corrective action framework in May 2017.

The RBI said that the decision was taken after taking into consideration the bank's financial position as of Dec. 31, 2020.

“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 RBI said in a statement.

The regulator said that the bank has given written commitment that it would comply with the norms of minimum regulatory capital, net non-performing assets and leverage ratio on an ongoing basis. Further, the bank has also apprised the regulator of the structural and systematic improvements that it had put in place which had helped the bank in continuing to meet these commitments. “Taking all the above into consideration, it has been decided that IDBI Bank be taken out of the PCA framework, subject to certain conditions and continuous monitoring.”

IDBI Bank had met three out of four key criteria needed to exit the prompt corrective action framework. Its net non-performing asset ratio has remained under the 6% mark for five consecutive quarters, capital adequacy ratio has remained above the regulatory minimum of 11.5% for five quarters with Tier 1 capital ratio above 8%. Its leverage ratio stood at 5.71% at the end of the third quarter, above the 4% threshold under PCA. Its return on asset has remained positive since March 2020, however, one full financial year of positive return ratios is yet to be achieved.

The bank's outstanding gross NPA ratio remains high at 23.52%. The pro forma gross NPA ratio, which adjusts for the impact of a Supreme Court bar on NPA classification after August 2020, is higher at 24.33%. Another 4% of advances are currently overdue by 30 days or more and can be seen as additional stress on the bank's portfolio. However, given the large provisions made by the bank, its net NPA ratio is at 1.94% and pro forma net NPA ratio at 2.75%.

When the PCA restrictions were introduced, the bank's gross NPA ratio stood at 24.11%.