IDBI Bank out of PCA framework
March 10, 2021
This is following the lender’s written commitment on complying with PCA norms
The Reserve Bank of India has decided to take IDBI Bank out of the Prompt Corrective Action (PCA) framework, subject to certain conditions and continuous monitoring.
This development comes in the backdrop of the Budget announcement that the government is working towards strategic disinvestment of its stake in IDBI Bank in FY2022.
The central bank had invoked the PCA against IDBI Bank in 2017 in view of its high non-performing assets and negative return on assets. Under the PCA, usually a bank’s branch expansion is restricted, and lending is limited to relatively less risky segments to nurse it back to health.
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IDBI Bank is planning to set off accumulated losses of about Rs 44,500 crore against the balance standing to the credit of the Securities Premium Account (SPA) after the declaration of its fourth quarter (Q4FY21) financial results.
According to the Draft Scheme for setting off accumulated losses as on April 01, 2021 against SPA, this balance sheet neutral exercise of re-arrangement of liabilities will enable the bank to represent its true financial position. It will also help the bank to raise resources via AT (Additional Tier) 1 Bonds in the near future as it will become eligible to make coupon payments.
Further, this will place the bank in a better position to achieve its turnaround plan (including coming out of the so-called prompt corrective action/PCA) in a time-bound manner. The bank would also be able to pay the dividend as per the applicable provisions within a reasonable time-frame.