RBI Initiates Prompt Corrective Action On IDBI Bank
Corrective action initiated on IDBI Bank due to high net non performing assets and negative return on assets.
The Reserve Bank of India (RBI) has initiated so-called prompt corrective action (PCA) on IDBI Bank, the lender disclosed to stock exchanges on Tuesday. Such action is taken when a lender’s financial indicators weaken below a prescribed level. The controls imposed can range from a restriction on declaring dividends to curbs on expanding the bank’s operations.
This is to inform that Reserve Bank of India, vide their letter dated May 5 2017, has initiated Prompt Corrective Action for IDBI Bank in view of high net NPA (non performing assets and negative ROA (return on assets).IDBI Bank Notification To Stock Exchanges
The disclosure from IDBI Bank comes weeks after the regulator revised its PCA framework. As part of the new rules disclosed on April 13, the RBI defined three risk thresholds for key indicators such as NPAs and linked specific corrective measures to each threshold.
Banks with a net NPA ratio of 6-9 percent will fall under risk category 1. Lenders with net NPAs between 9-12 percent of all loans fall into the second risk category, while those with a net NPA ratio above 12 percent fall into the third category.
Based on the NPA thresholds, IDBI Bank falls into the second category. The bank had a net NPA ratio of 9.61 percent as of December 2016. It is yet to disclose earnings for the fourth quarter of 2016-17.
Banks that fall in the second risk category may be asked to curtail dividends and branch expansion, according to the RBI’s guidelines. They may also be asked to make higher provisions, said the rules released by RBI earlier this month.
Data collated by BloombergQuint based on December 2016 earnings had shown that at least 16 public sector banks will be forced to take specific measures in the current fiscal to correct their performance.
While IDBI Bank has not disclosed what specific restriction RBI has placed on it, its statement to exchanges said that the prompt corrective action will not have any material impact on the bank’s performance. The action will contribute to improving internal controls, it added.
