IDBI Bank surges 17% as RBI removes lender from PCA framework

IDBI Bank's exit from the PCA framework eases the rules for lender to expand its business

Shares of IDBI Bank surged 17 per cent to Rs 44.80 on the BSE in intra-day trade on Friday after the Reserve Bank of India (RBI) removed the lender from the prompt corrective action (PCA) framework on improving finances and credit profile. This eases the rules for the lender to expand its business and also sets the stage for strategic divestment by the government which holds a 45.48 per cent stake in the firm.

RBI had placed IDBI Bank under the PCA framework in May 2017, after it had breached the thresholds for capital adequacy, asset quality (net NPAs was over 13 per cent in March 2017), return on assets and the leverage ratio.

The performance of IDBI Bank was reviewed by the Board for Financial Supervision (BFS) in its meeting held on February 18, 2021.

It was noted that as per published results for the quarter ending December 31, 2020, the bank is not in breach of the PCA parameters on regulatory capital, net NPA and leverage ratio. The bank has provided a written commitment that it 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.

Taking all the above into consideration, it has been decided that IDBI Bank be taken out of the PCA framework, subject to certain conditions and continuous monitoring, the bank said in a press release.

Thus far in the month of March, the stock of IDBI Bank has rallied 42 per cent from the level of Rs 31.55 on February 26. It had hit a 52-week high of Rs 55.75 on July 7, 2020.

At 09.19 am, the stock was trading 15 per cent higher at Rs 43.95, against a 0.95 per cent gain in the S&P BSE Sensex. A combined 33 million equity shares have changed hands on the counter on the NSE and BSE so far.