Indian Overseas Bank Exits RBI’s Corrective Action Framework

Shares of Indian Overseas Bank jumped more than 20% on exiting the Reserve Bank of India’s prompt corrective action framework after nearly six years.

The Chennai-based lender was no longer in breach of the parameters set in the framework, the banking regulator said in a statement. “The bank has provided a written commitment that it would comply with the norms of minimum regulatory capital, net NPA (non-performing assets) and leverage ratio on an ongoing basis.”

The bank has also informed the regulator of structural and systemic improvements that it has put in place to help meet these commitments.

Indian Overseas Bank was placed under the PCA framework in October 2015 after its asset quality and capital adequacy positions deteriorated. Under the framework, a bank isn't allowed to extend large value credit to its borrowers and the RBI also imposes significant restraints on spending capital.

The lender’s net NPA ratio declined to 3.15% as on June 30 from 3.58% at the end of March. Its capital adequacy ratio improved to 15.48% from 10.93% a year ago, compared with the minimum regulatory requirement of 9% now. Net profit for the quarter ended June trebled year-on-year to Rs 326.64 crore.

In the quarter ended December 2015, Indian Overseas Bank had reported a net loss of Rs 1,425 core. Its net NPA ratio was at 8.32%, while capital adequacy ratio stood at 9.73%.

Earlier this month, the RBI had allowed UCO Bank to exit the PCA framework after its financial position improved. Public sector lender, Central Bank of India, remains the sole lender under the restrictive framework now.

Shares of the lender rose as much as 20.3% to Rs 24.6 apeice, before paring some of their gains. It also saw around 53.5 lakh shares change hands in three large trades, according to Bloomberg data.