Regulator Unconvinced?
After the bank reported its March 2020 ended quarter earnings, it made submissions to the RBI to exit the framework. The regulator at the time said that it would watch for the impact of the Covid-19 pandemic, which was still unravelling, said Jebaraj.
“At that time (March 2020) we were not sure of what the impact could be. But today we are clear that the worst that we had envisaged has not happened (under Covid-19). Even the RBI’s own estimates on the credit quality deterioration across the sector have not really materialised,” he said.
In January, the RBI’s stress tests had shown that the gross NPA ratio for the banking sector could rise to 13.5% by September 2021, as compared with 7.5% as of September 2020. Under very severe stress, this number could rise further to 14.7%, the stress tests had shown.
While reported bad loans have remained far below the feared levels, the regulator remains cautious. In the case of IDBI Bank, the RBI is likely to review its stance on allowing it to exit from the corrective action framework only after the bank reports its fourth quarter results, a person familiar with the matter told BloombergQuint. Even then, the regulator will go beyond reported numbers and review account level performance to get a sense of the quality of the loan book, this person added.
The bank’s outstanding gross NPA ratio remains high at 23.52%. The pro forma gross NPA ratio, which adjusts for the impact of a Supreme Court bar on NPA classification after August 2020, is higher at 24.33%. Another 4% of advances are currently overdue by 30 days or more and can be seen as additional stress on the bank’s portfolio.
When the PCA restrictions were introduced, the bank’s gross NPA ratio stood at 24.11%.
While IDBI Bank has remained under PCA since 2017, the regulator has relaxed certain restrictions. According to Jebaraj, last year the RBI had allowed the bank to enhance its loan limits by 25% to existing high-rated corporate borrowers. The regulator has also allowed the bank to restart lending to mid-sized corporates.
An email sent to the RBI on March 9 remained unanswered.