IDBI Relived RBI's lenders facing curbs

IDBI is relieved from the Reserve Bank of India’s watch list for troubled banks after four years. With this, the bank is no longer subject to the restriction on large loans, dividend payment, and expansion of business or salary hikes. However, the move comes at a time when the government has announced its objective to divest stake in the bank as part of its privatisation program.

The RBI had first put IDBI Bank under its prompt corrective action (PCA) framework in May 2017 post it had exceeded the limits set by the central bank for bad loans and its capital position destabilized. Since then, the government had sold its stake to LIC, which had invested Rs.21,524 crore in the bank to pick up a 49.2 percent stake. The government retained 45.5 percent.

However, LIC’s investment in the bank continues to be red even after more than five percent rise in the bank’s share price to over Rs.38 on Wednesday. IDBI Bank has a market valuation of Rs 41,128 crore. This values LIC’s stake at Rs 20,250 crore. The bank has been held back because of the PCA framework as its expertise lay in its legacy business of project and corporate loans, which it was barred from under the restrictions.

The RBI states, “Taking all the above into consideration, it has been decided that IDBI Bank Limited be taken out of the PCA framework, subject to certain conditions and continuous monitoring.”

According to the RBI, the performance of IDBI Bank was reviewed by the financial supervision board on February 18, 2021. The board considered the results for the quarter ended December 2020, where the bank had reported a net profit of Rs.378 crore and qualified to exit the RBI’s PCA framework. IDBI Bank also provided a written commitment to the RBI, stating that it would ensure that its financial ratios are within the prescribed parameters. It also highlighted the structural changes that have been put in place to improve the performance of the bank.

Last month, finance ministry officials had indicated that they expected three more public sector banks Indian Overseas Bank, Central Bank and UCO Bank to exit the RBI’s PCA framework soon.