IDBI Bank to seek exemption from RoA criterion to exit RBI’s prompt corrective action

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Published: September 20, 2019 3:03:26 AM

At the end of June, IDBI Bank had a CRAR of 8.14% and a net NPA ratio of 8.02%. Its RoA stood at (-)4.96% and it posted a net loss of Rs 3,800 crore for the quarter ended June.

Bank of India, Bank of Maharashtra, Allahabad Bank, Corporation Bank, Oriental Bank of Commerce, OBC, Dhanlaxmi Bank, PCA, industry news, banking news, LIC, IDBI Bank Bank of India, Bank of Maharashtra, Allahabad Bank, Corporation Bank, Oriental Bank of Commerce (OBC) and Dhanlaxmi Bank have been allowed to come out of the PCA.

IDBI Bank plans to request the Reserve Bank of India (RBI) to exempt it from the requirement to turn in a positive return on assets (RoA) in order to exit the central bank’s prompt corrective action (PCA) framework. If the RBI accedes to such a request, the lender will exit the framework by the end of October, people aware of the developments told FE.

With a Rs 9,300-crore infusion coming in from the government and promoter Life Insurance Corporation (LIC) of India, IDBI Bank expects that it will meet the requirement on the three other parameters of the capital adequacy ratio (CRAR), net losses and net non-performing assets (NPAs).

“Once the funds come in from the government and LIC, the bank will be eligible to exit the PCA on the three other parameters. As for RoA, we are going to write to the regulator to seek an exemption as we really need to start generating interest income to get back on track,” a source said.

At the end of June, IDBI Bank had a CRAR of 8.14% and a net NPA ratio of 8.02%. Its RoA stood at (-)4.96% and it posted a net loss of Rs 3,800 crore for the quarter ended June. For a bank to exit the PCA framework, it requires to break the loss-making streak. However, there is a view that the RBI may be willing to go easy on this count.

“The other banks who have been removed from the PCA also did not meet the profit criteria. So, there is reason to believe that IDBI will be allowed to do so as well,” another banker said.

So far, Bank of India, Bank of Maharashtra, Allahabad Bank, Corporation Bank, Oriental Bank of Commerce (OBC) and Dhanlaxmi Bank have been allowed to come out of the PCA. IDBI Bank, Central Bank of India, Indian Overseas Bank and United Bank of India continue to remain under the framework. Among these, United Bank is set to be amalgamated into Punjab National Bank along with OBC.

The PCA framework was devised by the central bank to nurse weak banks back to health by enforcing a quarantine of sorts. The banks brought under the framework faced restrictions on increasing risk weighted assets, accepting bulk deposits and expanding their branch networks. Erstwhile Dena Bank had been barred from giving out fresh loans altogether in mid-2018, while Allahabad Bank was not allowed to lend to corporates.

Earlier this month, the government said it was looking at the four banks still under the PCA framework to come out of it after the forthcoming round of recapitalisation. “After the last tranche of recapitalisation and the increased flow of capital, I expect the remaining four public sector banks (PSBs) to come out of the PCA framework,” MoS finance Anurag Thakur said.

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