Three banks approach RBI to exit PCA; IDBI Bank has best chance

Analysts said of the three, IDBI Bank looks the best while the other two may take some more time.

By Ankur Mishra

The managements of IDBI Bank, UCO Bank and Central Bank of India have reached out to the Reserve Bank of India (RBI), seeking permission to exit the prompt corrective action (PCA) framework, a source close to the development told FE.

“It’s possible that one bank may be brought out of PCA by the end of this month,” the source added.

Analysts said of the three, IDBI Bank looks the best while the other two may take some more time.

RBI had kept the three banks in the PCA framework – under which the central bank puts partial restrictions on loan disbursements – after a massive asset quality deterioration, losses in the books and lower capital levels.

The LIC-owned IDBI Bank has met all but one of the criteria for coming out of PCA. The bank’s return on assets (ROA) is negative at -7.63% for the quarter ended December 2019, while the RBI’s PCA framework requires the ROA to be above 0.25%.

IDBI Bank MD & CEO Rakesh Sharma attributed the negative ROA to a one-time hit of Rs 6,273 crore taken by the bank due to lower tax regime opted in the third quarter. The bank posted a net loss of Rs 5,763 crore in the December quarter.

The bank’s net non-performing assets (NPAs) remained at 5.25% in the December quarter – below the 6% threshold set by RBI. Similarly, the capital adequacy ratio (CAR) has moved to 12.56% after LIC pumped in over Rs 30,000 crore into the bank to take a majority stake. The RBI threshold of capital adequacy ratio is 11.5%. The bank’s Tier-1 capital is also comfortable at 10.16%, which is above the RBI requirement of 8%.

UCO Bank and Central Bank of India are also hopeful of coming out of the PCA framework soon. However, both the banks’ asset quality remained weak during the December quarter. While Central Bank of India reported net NPAs at 9.26%, UCO Bank posted net NPAs at 6.34% in the December quarter, which is above the RBI’s threshold of 6%.

Similarly, ROA for UCO Bank and Central Bank of India remained below RBI’s requirement of 0.25% at -1.52% and 0.19%, respectively. However, in terms of capital adequacy, Central Bank of India remained above RBI’s requirement of 11.5% with a CAR of 12.83%. The CAR for UCO Bank remained at 10.27% in the third quarter of FY20.