What does it mean now that IDBI Bank has been taken out of Prompt Correction Action?

Prompt Corrective Action or PCA was a special scheme introduced by the RBI for highly stressed where such banks would be placed under a separate bracket and their NPAs, capital adequacy and their exposures would be closely monitored. Also, there were severe restrictions on the ability of such banks to either lend, pay dividends to shareholders or even to give major salary increments to the top management.

While IDBI was among the banks to brought under the PCA in 2017, it is now being taken out of the list by the RBI after it showed a distinct improvement in performance in the last few quarters. The RBI has formally announced that IDBI Bank was out of the “Prompt Corrective Action” or the PCA framework after it showed a perceptible improvement in its finances and its solvency and efficiency ratios.

Let us also understand why this removal from PCA is important for IDBI Bank. It will allow IDBI, after a gap of almost 4 years, to derive greater flexibility to lend and expand its banking business in a more aggressive manner. This decision was taken at the RBI Board for Financial Supervision which reviewed the performance of IDBI Bank in its 18-Feb meeting. This decision was taken on regulatory capital adequacy levels, net NPAs and the leverage levels.

When IDBI Bank was put under the PCA framework in 2017, RBI had placed stringent curbs on lending and spending. This was also the period, IDBI Bank became a part of LIC. IDBI Bank has also reportedly apprised the RBI about the structural improvements that it has put in place to meet capital and NPA reduction commitments in the future. For the Dec-20 quarter, IDBI Bank had posted net profits of Rs.378 crore and a sharp fall in net NPAs.