After being put under restrictions for nearly four years by the Reserve Bank of India (RBI), IDBI Bank will be taken out of prompt corrective action (PCA) framework following improvement in its overall performance.
The RBI's decision was taken after IDBI's performance was reviewed by the Board for Financial Supervision (BFS) in its meeting held on 18 February.
"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 (non-performing asset) and leverage ratio," the central bank said on Wednesday.
The regulator said 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. The bank has also apprised the RBI of the structural and systemic improvements that it has put in place which would help it 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's net NPA ratio is under the 6% mark for five consecutive quarters. Capital adequacy ratio is also above the regulatory minimum of 11.5% for five quarters, with Tier 1 capital ratio above 8%. Leverage ratio is at 5.71% at the end of the third quarter, which is above the 4% threshold under PCA. Having met these three requirements to exit the PCA, the bank only had to meet the criteria of posting one full financial year of positive return ratios. The return on asset has remained positive since March 2020 and the bank is on course to complete this criteria by the end of this month.
Life Insurance Corporation-owned IDBI Bank was placed under PCA in May, 2017 as it had slipped below certain financial parameters such as capital ratios, asset quality and profitability. It was thus kept under the close watch of RBI.
Helped by a rise in net interest income, IDBI Bank reported a net profit of Rs 378 crore in the fiscal third quarter ended December 2020. Net interest income rose 18% to Rs 1,810 crore compared with the same period a year-ago. Net interest margin (NIM) improved 60 basis points to 2.87% in the December quarter.
Gross NPA ratio declined to 23.52% from 28.72% a year ago. Net NPAs eased to 1.94% as against 5.25%. Provision coverage ratio (including technical write-offs) improved to 97.08% from 92.41%.
