LIC-owned IDBI Bank removed from PCA framework

The Reserve Bank of India (RBI) has removed IDBI Bank from the Prompt Corrective Action (PCA) framework which is the enhanced regulatory supervision of RBI on March 10, 2021. The bank was removed from the framework after four years as a result of its improved financial performance.

Background

Central bank had enlisted the IDBI Bank under the PCA framework in May 2017. This is because the bank had breached the thresholds for capital adequacy, leverage ratio, asset quality and return on assets. The net NPAs were more than 13% in the month of March 2017.

Highlights

By the end of December 31, 2020, it was noted that the bank was not in breach of PCA parameters on regulatory capital, leverage ratio and net NPA. It reported a net profit of ₹378 crores in that quarter. Thus, it was removed from the regulatory framework.

About Prompt Corrective Action (PCA)

It is a framework under which the banks with weak financial metrics are kept under regulation by the central bank. The framework was introduced in 2002 by the RBI. It is a structured early-intervention mechanism for the banks which are having poor asset quality or are vulnerable because of losses. The PCA was launched with the aim of checking the issue of Non-Performing Assets (NPAs) in the banking sector. It seeks to help and give alerts to the regulator, investors & depositors when the bank is in or is moving into trouble. It tries to solve the problem before it turns into crisis. The framework helps in monitoring the key performance indicators of the bands and restoring the financial health of the bank. This framework is applicable only to the commercial banks. Co-operative banks and non-banking financial companies (NBFCs) are not covered under the framework.

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