RBI puts restriction on IDBI Bank as Prompt Corrective Action

Reserve Bank of India has invoked ‘Prompt Corrective Action’ (PCA) on IDBI Bank. The PCA has been invoked by RBI due to IDBI Bank’s increasing NPAs and negative Return on Assets.

IDBI Bank’s net NPAs increased to 9.61% in the December 2016 quarter from 8.32% during September 2016 quarter. The annualized return on assets for the quarter ending December 2016 was (-2.32) percent.

Under PCA, restriction are put on the bank from hiring, opening branches and giving big ticket loans.
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There are certain risk threshold for each area (indicator), which can range from Risk Threshold 1 to 3 depending upon the severity of risk. Based on the risk threshold, RBI takes some mandatory actions and also may take the discretionary actions.

According to moneycontrol.com, Dena Bank may also face the restrictions under ‘Prompt Corrective Action’ by RBI, as it has also breached the risk threshold 2 in net NPA ratio. Net NPA Ratio of Dena Bank for the quarter ending December 2016 was 9.52%.

For example if NPA ratio is between 6%-9%, this is within Risk Threshold 1, if it is 9%-12%, this is within risk threshold 2 and if more than 12%, this is within risk threshold 3.

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Following is matrix of mandatory actions and Discretionary actions which RBI takes on breach of risk threshold by banks as part of Prompt Corrective Action.