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Reserve Bank of India on Wednesday has taken public sector lender Indian Overseas Bank (IOB) out of Prompt Corrective Action (PCA) framework (PCA) on improvement in financial and credit profile. This decision gives the Chennai-based lender more freedom for lending, especially to corporations and grow the network, subject to prescribed norms.
IOB was placed under PCA in October 2015 on account of high Net-Performing Assets (NPAs) and negative Return on Assets (RoA). It was barred from increasing risk-weighted assets.
As of March 2021, its net NPAs declined to 3.58 per cent from 5.68 per cent in March 2015 (FY15). It posted a net profit of Rs 831 crore in FY21 as against net loss of Rs 454.33 crore in FY15. The ROA was 0.27 per cent for FY21 while it was negative at -0.16 per cent for FY15.
IOB stock closed 0.74 per cent higher at Rs 20.5 per share on BSE.
Kolkata-based UCO Bank exited PCA framework earlier this month. Now, only Mumbai-based Central Bank of India remains under PCA regime.
RBI, in a statement, said its Board for Financial Supervision reviewed the performance of the IOB. The bank is not in the breach of the PCA parameters as per its published results for the year ended March 31, 2021, said RBI.
Under the PCA, the RBI imposes certain business restrictions on banks with weak financial metrics. The nature and degree of curbs are threshold-based and depend on the financial profile of each bank.
According to India Ratings, IOB has been meeting the threshold to exit the PCA framework on a quarterly basis in the last four quarters and on an annual basis for FY21.
RBI said the bank has given commitment to comply with the norms of Minimum Regulatory Capital, Net Non-performing Assets and Leverage ratio on an ongoing basis. It has apprised about the structural and systemic improvements put in place to help the bank to meet these commitments.
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