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RBI initiates PCA against IDBI Bank

13 May 2017

Last month, RBI said that capital, asset quality and profitability would be the basis of the PCA or prompt corrective action framework on which the banks would be monitored and has defined three kinds of risk thresholds.

IDBI Bank's non-performing loans ratio rose sharply to 15.2 per cent in the December quarter from 10.9 per cent in March 2016.

"A bank will be placed under the PCA framework based on the audited annual financial results and RBI's supervisory assessment".

In February this year, global rating agency Standard & Poor's downgraded IDBI Bank to "BB" citing "very weak asset quality" but maintained a stable outlook on the state-run lender.

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IDBI, which is nearly 74 percent owned by the government, had a net bad loans ratio of 9.61 percent as of December. "However, RBI may impose PCA on any bank during the course of a year (including migration from one threshold to another) in case the circumstances so warrant", RBI said.

A public sector lender, Dena Bank's net NPAs at end of the fourth quarter was 10.66 percent, up from 9.52 percent in the third quarter.

Accordingly, K Kharat CEO of IDBI Bank was asked to join Indian Bank and M K Jain, CEO of Indian bank was asked to move to IDBI Bank.

Apart from this, the RBI has discretionary action plans too. Banks will also have to launch a special drive to reduce stock of NPAs and contain generation of fresh NPAs.

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RBI may likewise force limitations on the count on borrowings from the interbank advertise.

"There is about 600 billion rupees worth of equity-capital gap that state-run lenders need to plug in the next two years after factoring in the 200 billion rupees that the government has pledged as of now", Srinivasan said.

The current market value of the stressed assets were far lower and the banks will have to take a significant hit when they write-down the value of these assets to market value, according to the report.

IDBI Bank had posted a net loss of Rs 2,254.96 crore for the quarter ended December 31, 2016, as compared to net loss of Rs 2,183.68 crore for the quarter ended December 31, 2015.

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RBI initiates PCA against IDBI Bank