FinMin pulls up RBI over IDBI Bank's PCA issue
Subsequently, RBI takes the bank out of PCA framework; The bank reports better results for three quarters in a row, closes 2019-20 on positive note
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Mumbai: The Union Finance Ministry shot off a letter to the RBI Governor, asking him for his clarification on the issue of the IDBI Bank being still under PCA (Prompt Corrective Action) in spite of its showing good financial result consecutively for three quarters in a row.
Bizz Buzz had carried a detailed story on the topic in its edition, dated Janaury 04, 2021. Sources confirmed to this correspondent that the Bizz Buzz story created ripples in the Finance Ministry in New Delhi as the ministry officials were surprised to know why RBI has been maintaining a stony silence on the issue and didn't take any action so as to remove the bank from PCA regime.
Sources also confirmed that the issue was discussed elaborately within an internal meeting of the apex bank recently.
The State-owned lender IDBI Bank has been registering profit for past three quarters and even it had closed the year 2019-20 with positive result. Still, there was no respite for the lender from PCA (Prompt Corrective Action). On Wednesday, RBI has taken the bank out of PCA framework more than two months after this e-daily published the story.
PCA is a framework under which banks with weak financial metrics are put under watch by the RBI. The PCA framework deems banks as risky if they slip below certain norms on three parameters capital ratios, asset quality and profitability.
The only hitch before the bank, as per RBI's PCA norm, was its falling on the front of RoA. Although annual RoA (return on asset) of the bank has been negative for the last four years since FY17, losses are adjusted in the capital adequacy. The losses are thus funded by the equity of promoters.
While annual RoA was negative for FY20 with the bank making a full year net loss, it has posted a net profit in Q1 (Rs 144 crore) and Q2 (Rs 324 crore) and Q3 (Rs 378 crore) of FY 2020-21. In fact, it was after 13 consequent quarters of incurring heavy losses that the lender has started showing profitability. Surprisingly, it had registered a net profit of Rs 135 crore for the fiscal 2019-20 (as on 31 March 2020) too.
Incidentally Finance Minister has announced disinvestment in IDBI bank- the lifting of PCA will have major impact on share prices and hence its valuation. Therefore, the timing of exit assumes great significance. Also, in this context it may be mentioned that Internal Working Group of RBI has recommended allowing corporate ownership of banks. RBI is yet to take final decision on the recommendations.
