IDBI Bank Out of PCA framework : RBI Announced, Check details here

IDBI Bank Out of PCA framework: According to the RBI, it was noted that as per published results for the quarter ended December 31, 2020, the bank is not in breach of the PCA parameters on regulatory capital, net NPA, and leverage ratio so IDBI Bank Out of PCA framework.  The bank was put under the PCA framework in May 2017, slapping curbs on expansion, investments, and lending.

After the continuous monitoring, (Industrial Development Bank of India) IDBI Bank Out of PCA framework announced RBI(Reserve Bank Of India). For more details about PCA Framework and IDBI Bank Out of PCA framework details, proceed through the article further.

Prompt Corrective Action (PCA) Framework:

What is it?

  • Prompt Corrective Action or 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.
  • On profitability, banks with negative returns on assets for two, three, and four consecutive years fall under Prompt Corrective Action thresholds.
  • The PCA framework is applicable only to commercial banks and not extended to co-operative banks, non-banking financial companies (NBFCs), and FMIs.

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Why is it important?

  • As most bank activities are funded by deposits that need to be repaid, it is imperative that a bank carries a sufficient amount of capital to continue its activities.
  • PCA is intended to help alert the regulator as well as investors and depositors if a bank is heading for trouble.
  • The idea is to head off problems before they attain crisis proportions.
  • Essentially PCA helps RBI monitor key performance indicators of banks, and taking corrective measures, to restore the financial health of a bank.

Why should I care?

  • If a bank in which you hold deposits falls under PCA, don’t press the panic button. The RBI’s corrective measures may bode well for your bank. But do keep a watch on the RBI’s PCA announcements, as they can offer vital cues on the performance of your bank.

Reason for LIC-Owned IDBI Bank put into PCA Framework by RBI:

  • The Industrial Development Bank Of India was under the framework in May 2017, after it had breached the thresholds for capital adequacy, asset quality (net NPAs were over 13% in March 2017), return on assets, and leverage ratio.
  • The lender had reported a net loss of ₹5,763 crores a year earlier.

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Why IDBI Bank is Out of PCA Framework?

  • According to the RBI, it was noted that as per published results for the quarter ended December 31, 2020, the bank is not in breach of the PCA parameters on regulatory capital, net NPA, and leverage ratio.
  • “The bank has provided a written commitment that it would comply with the norms of minimum regulatory capital, net NPA, and leverage ratio on an ongoing basis and has apprised the RBI of the structural and systemic improvements that it has put in place which would help the bank in continuing to meet these commitments,” the RBI said.
  • “The performance of IDBI Bank, currently under the prompt corrective action framework of the RBI, was reviewed by the Board for Financial Supervision (BFS) in its meeting held on February 18, 2021,” it said.
  • The LIC-owned IDBI Bank had reported a standalone net profit of ₹378 crores for the December quarter.

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FAQ:

Q.What is the full form of IDBI Bank?

Industrial Development Bank Of India is the full form of IDBI.

Q.When PCA was imposed on IDBI Bank?

The Industrial Development Bank Of India was under the framework in May 2017.

Q.PCA will be imposed on banks by which authority in India?

PCA will be imposed by RBI on banks in India.

Q.What is PCA Framework? Why is it imposed on banks?

The Reserve Bank has specified certain regulatory trigger points, as a part of prompt
corrective action (PCA) framework, in terms of three parameters, i.e. capital to risk-weighted assets ratio (CRAR), net non-performing assets (NPA), and Return on Assets (RoA).

Q.Why PCA is imposed on IDBI Bank?

The Industrial Development Bank Of India was under the framework in May 2017, after it had breached the thresholds for capital adequacy, asset quality (net NPAs were over 13% in March 2017), return on assets, and leverage ratio.

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