Reserve Bank removes Indian Overseas Bank from PCA framework

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The Reserve Bank of India (RBI) on Wednesday said that it has removed Indian Overseas Bank from the prompt corrective action (PCA) restrictions framework on certain conditions. “It has been decided that Indian Overseas Bank should be taken out of the PCA restrictions subject to certain conditions and continuous monitoring,” the Reserve Bank of India said in a statement.

The banking regulator added that the IOB has provided “a written commitment that would comply with the norms of minimum regulatory capital, net NPA and leverage ratio on an ongoing basis and has apprised the RBI of the structural and systemic improvements that it has put in place which would help the bank in continuing to meet these commitments”.

This means Indian Overseas Bank will no longer face strict lending restrictions that were put in place by the RBI in October 2015.  Under PCA, the RBI imposes business restrictions on banks, restrictions on dividend distribution or remittance of profits, requirement on promoters to bring in more capital, restrictions on branch expansion, higher provisioning requirement, and restrictions on management compensation. This is done after banks financials are bellow certain parameters set by the RBI.

The net NPAs of IOB declined from 5.44% in March 2020 to 3.58% in March 2021 – below the PCA threshold. They went further down further to 3.2% in June 2021. Earlier this month, the RBI had removed UCO Bank from the PCA regime.  Even Central Bank of India is now waiting to get out of the framework as well and the RBI is already examining the performance of the bank.

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