IDBI turns in a profit, hopes for quick exit from corrective action

Mumbai: IDBI Bank is getting closer to exiting the Reserve Bank of India’s (RBI) restrictive prompt corrective action (PCA) framework after posting a profit for the first time in 13 quarters.

Though the profit was due to write back of provisions, the bank maintains that its financial ratios are a lot more healthy and it deserves to come out of PCA soon.

“Some other banks were brought out of PCA despite not making profits. We have now delivered on all parameters and are even profitable. It is only return on assets (RoA) where we have to improve. But we will write to RBI pleading our case to released from the PCA restrictions,” said Suresh Khatanhar, deputy managing director at IDBI Bank. He was referring to the RBI removing Bank of India, Bank of Maharashtra, Oriental Bank of Commerce, Allahabad Bank and Corporation Bank last year after capital infusion by the government.

PCA is triggered when a bank’s capital adequacy ratio falls below 10.25 per cent, net NPAs are above 6 per cent and RoA is negative for two consecutive years. Banks under PCA have to conserve capital and face restrictions on dividend payments, branch expansion, management compensation and credit growth. IDBI has been under PCA since May 2017.

The fourth quarter released on Saturday showed that with a capital adequacy of 13.31 per cent and net NPA of 4.19 per cent the bank has met two of the three parameters to get out of PCA. It made a profit of 135 crore in the quarter ended March 2020 from a loss of 4,918 crore a year ago, largely due to a 1,511 crore of write-back in NPA provisions.


It is only on the RoA that the LIC-owned lender does not qualify. The bank’s RoA at the end of March 2020 was -4.26 per cent versus -4.68 per cent a year earlier which means it still has two consecutive years of negative RoA.IDBI Bank officials argue that RoA is an annual calculation and should not stop the RBI from delaying a change in its status.

However, analysts said the bank’s recovery is still a work in progress. “Default risks have increased post the Covid-19 crisis and this bank has had a history of NPAs. Though most of it has been provided for with 27 per cent gross NPAs a turnaround is very difficult to believe at this stage,” said an analyst with a foreign brokerage.


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