Rising bad loans: RBI invokes corrective action against IDBI Bank

The Reserve Bank of India (RBI) has invoked its so-called prompt corrective action (PCA) framework on IDBI Bank Ltd because of its rising bad loans and negative return on assets, the lender informed stock exchanges on Tuesday.

Under PCA, banks are assessed on three parameters: capital ratios, asset quality and profitability. Failure to meet any of these norms could trigger regulatory action including strictures on lending and branch expansion, change in management and reduction in assets.

IDBI Bank has seen its gross non-performing assets nearly treble to ₹35,245 crore in the eight quarters to December 2016. The sharpest increase was after central bank’s asset quality review in the December quarter. As a percentage of its total advances, bad loans stood at 15.16% at the end of December. IDBI Bank also reported losses of ₹3,664.80 crore in 2015-16 and ₹1,958 crore for the nine months ended December 2016, leading to almost two years of negative return on assets.

RBI’s decision to invoke regulatory action happens after the regulator increased the threshold limits on various financial parameters for triggering regulatory action under the PCA framework last month. It also comes after the government moved an amendment of the Banking Regulation Act to empower RBI to deal with bad loans directly.

Under the new rules, breaching a net NPA ratio of 6% invites RBI action. Under the old rules, net NPA ratio had to breach 10% for RBI action to kick in. IDBI Bank’s net NPA ratio breached 6% in the March 2016 quarter and stood at 9.61% at December end.

The corrective action plan is the final in a series of steps taken by the regulator and the government to turn around the stateowned bank. The government recently swapped the CEO of IDBI Bank, Kishore Kharat, with Mahesh Kumar Jain, who headed Indian Bank Ltd.

“This action will not have any material impact on the performance of the bank and will contribute to improving the internal controls of the bank and improvement in activities,” IDBI Bank said in the stock exchange notice.

Analysts said that IDBI Bank could be the first among a clutch