RBI pulls out Indian Overseas Bank from prompt corrective action

RBI pulls out Indian Overseas Bank from prompt corrective action

The Reserve Bank of India on Wednesday pulled public sector lender Indian Overseas Bank (IOB) out of the Prompt Corrective Action (PCA) framework (PCA) to improve financial and credit profiles. The decision gives greater freedom to the Chennai-based lender to lend, especially to corporations, and to develop the network subject to prescribed norms.

IOB was placed under PCA in October 2015 due to high net-performing assets (NPA) and negative return on assets (RoA). It was barred from raising 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 made a net profit of Rs 831 crore in FY21 as against a net loss of Rs 454.33 crore in FY15. The ROA for FY21 was 0.27 per cent while for FY15 it was negative at -0.16 per cent.

Shares of IOB closed 0.74 per cent higher at Rs 20.5 per share on the BSE.

Kolkata-based UCO Bank pulled out of the PCA framework earlier this month. Now, only Mumbai based Central Bank of India is under PCA regime.

RBI said in a statement that its Board of Financial Supervision reviewed the performance of IOB. RBI stated that the bank is not in contravention of PCA norms as per the published results for the year ended March 31, 2021.

Under the PCA, the RBI imposes certain business restrictions on banks with weak financial metrics. The nature and degree of sanctions are threshold-based and depend on the financial profile of each bank.

According to India Ratings, IOB is meeting the threshold of exit from the PCA framework on a quarterly basis over the last four quarters and on an annual basis for FY21.

RBI said that the bank has committed to adhere to the norms of minimum regulatory capital, net non-performing assets and leverage ratio on an ongoing basis. It has apprised the bank of the structural and systemic reforms undertaken to help it meet these commitments.

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