- Following approval by the Union cabinet in August 2018, LIC completed a 51 per cent stake in IDBI Bank in January 2019.
- IDBI Bank’s net non-performing assets (NPAs) were 1.94 per cent as of December 31. Its total capital adequacy ratio under Basel III norms was 14.77 per cent, and it posted a leverage ratio of 5.71 per cent.
IDBI Bank will no longer be subject to the Reserve Bank of India’s (RBI) strict lending restrictions implemented in May 2017. The central bank announced Wednesday that the private sector lender has removed from the RBI’s prompt corrective action (PCA) system.
“The bank has provided a written commitment to comply with the minimum regulatory capital, net non-performing asset (NPA), and leverage ratio norms on an ongoing basis, and has informed RBI of the structural and systemic improvements that it has implemented to assist the bank in continuing to meet these commitments,” RBI said in a statement.
Following approval by the Union cabinet in August 2018, LIC completed a 51 per cent stake in IDBI Bank in January 2019. LIC, however, is planning a gradual sale of its stake in IDBI Bank, as Mint announced in September last year.
Apart from IDBI Bank, finance minister Nirmala Sitharaman declared in the Union budget for FY22 that the government would sell a stake in two other state-owned lenders without naming them. Experts agree that removing lending restrictions would speed up the privatization phase and pave the way for the government’s planned stake sale in the lender.
IDBI Bank’s net non-performing assets (NPAs) were 1.94 per cent as of December 31. Its total capital adequacy ratio under Basel III norms was 14.77 per cent, and it posted a leverage ratio of 5.71 per cent. PCA includes restricting high-risk lending, increasing provisioning, and limiting management compensation.
According to the central bank, the IDBI Bank performance was checked by the Board for Financial Supervision (BFS) on February 18. The bank is not in violation of the PCA criteria based on reported results for the December quarter.
“Given the above, it has been agreed to exclude IDBI Bank from the PCA system, subject to certain conditions and ongoing monitoring,” RBI said.
The PCA framework, modelled after the Federal Deposit Insurance Corporation’s (FDIC) PCA framework, was adopted in December 2002 as a standardized early intervention mechanism. In April 2017, these regulations were revised.
In a speech on October 12, 2018, then-RBI deputy governor Viral Acharya defended the revised PCA norms, describing them as “essential medicine” to prevent further bank balance sheet haemorrhaging. He said that, despite having lower capitalization and a higher ratio of stressed assets than other banks, PCA banks had credit growth compared to other banks until 2014. Indian Overseas Bank(IOB), the other is Central Bank of India, and UCO Bank remain under PCA following IDBI Bank’s exit.
Apart from IDBI Bank, finance minister Nirmala Sitharaman announced in the Union budget for FY22 that the government would sell a stake in two other state-owned banks, but she did not name them. Experts agree that lifting lending restrictions will hasten the privatization process and enable the government to sell a lender stake.
