Reserve Bank put IDBI under watch for bad loans

Vastavam web:  The Reserve Bank has put IDBI Bank under watch by initiating Prompt Corrective Action against it, a move that will place various restrictions on the lender including on fresh loans and dividend distribution.”This is to inform that RBI (on May 5) has initiated Prompt Corrective Action for IDBI Bank in view of high net NPA and negative RoA (return on assets),” IDBI bank said in a regulatory filing.The gross non-performing assets (NPAs) or bad loans of the bank shot up by 80 per cent to Rs 35,245 crore and it booked a loss Rs 2,255 crore for the December quarter.Indian Overseas Bank was also put under ‘Prompt Corrective Action’ (PCA) in 2015 when its gross NPAs touched 10 per cent. But the strict condition imposed by RBI was gradually lifted with improvement in its financials.
RBI last month issued a new set of enabling provisions under the revised PCA framework with a clause that if the bank does not show improvement then it could be either be merged or taken be over by other bank.RBI said the new set of provisions is effective April 1 based on the financials of each bank as of March 2017, and override the existing PCA framework. It also said the new framework will be reviewed after three years.More importantly, if a bank crosses the third level of risk threshold (wherein a banks common equity tier I capital falls below the threshold of 3.625 per cent by 3.125 per cent or more) the said bank will be either amalgamated or merged or taken over by another entity.”Breach of risk threshold 3 of CET1 by a bank would identify it as a likely candidate for resolution through tools like amalgamation, reconstruction, winding up etc,” RBI had said.