LIC-owned IDBI Bank, currently under prompt corrective action since May 2017, is expected to hold meeting with the RBI this week to seek removal of operational restrictions, according to sources. The lender will make a presentation to the Reserve Bank of India on its improved financial position, the sources said, adding the management is hopeful of coming out of the PCA framework by the end of this month. The RBI had placed IDBI Bank in May 2017, after it had breached the thresholds for capital adequacy, asset quality (net NPAs was over 13 per cent in March 2017), return on assets and the leverage ratio.
Since coming under the PAC, more than a third of its entire book became dud loans in Q2 of FY18, with the gross NPA ratio touching 32 per cent and the net NPAs at 17.30 per cent.
"The presentation to the RBI will be on the key financial numbers. On the capital front and in terms of net NPAs, we have been able to make progress," the sources told PTI.
A query sent to the bank did not elicit any response.
The PCA norms trigger if a bank's net NPA crosses 6 per cent or if CRAR (capital to risk weighted assets) is below the regulatory requirement of 10.88 per cent as of March 2019.
In the quarter to September 2019, its net NPA stood at 5.97 per cent and tier-1 capital and CRAR improved to 9.52 per cent and 11.98 per cent, respectively.
Capital infusion through recap bonds by the government in Q2, and also from LIC, and recovery from stressed accounts have also helped the bank in shoring up its capital position, another person familiar with the matter said.
In the second quarter of FY20, the bank received Rs 4,743 crore from LIC, which holds 51 per cent stake, and Rs 4,557 crore from the government which still owns 47.11 per cent.
Another positive is the recovery of close to Rs 3,000 crore from the NCLT resolution of Essar Steel and Ruchi Soya in the third quarter, further strengthening the capital position, the sources said.
The only area where the bank is still lagging is return on assets (RoA) which continues to remain negative for the fourth consecutive year. However, the bank is hoping some relaxation on the RoA front after the RBI eased the same for five other banks last year.
In September quarter of this fiscal, IDBI Bank had reported a net loss of Rs 3,459 crore, marginally better than Rs 3,602 crore in the year-ago period.
In FY19, RBI removed five banks -- Bank of India, Bank of Maharashtra, Oriental Bank of Commerce, Allahabad Bank and Corporation Bank -- from the PCA framework in two phases after capital support from government that resulted in improvement in their financial parameters.
Capital infusion helped these lenders meet requisite capital thresholds and reduce their net NPA levels to below 6 per cent.
The monetary authority as an effort to enhance its supervisory framework had introduced the PCA framework, based on structured early intervention mechanism, in December 2002.
The framework was subsequently reviewed by the RBI keeping in view the international best practices and recommendations of the working group of the Financial Stability and Development Council (FSDC) on resolution regimes for financial institutions and Financial Sector Legislative Reforms Commission.
The revised PCA framework was issued on April 13, 2017 and implemented on March 31, 2017.