IDBI's bad loans may be higher than reported, take action: RBI tells govt

The Reserve Bank of India has raised serious concerns over the financial health of state-run IDBI bank, the Economic Times today reported. The observation came after the central bank noticed several shortcomings in the way the IDBI recognised its non-performing assets. According to the report, the RBI wrote to the Finance Ministry about the situation and asked it to take appropriate action.

"It was found out during our inspection that the bank's mechanism for identifying bad loans is also deficient," the ET quoted the RBI as saying in its letter.  The central bank thinks that IDBI's non-performing assets could be higher than what's been reported.

Last year in May, the RBI put IDBI Bank under a prompt corrective action or PCA for its high non-performing assets and negative return on assets. The move came after the bank's NPAs shot up by 80 per cent to Rs 35,245 crore and it booked a loss Rs 2,255 crore for the December quarter of FY 2016-17. Its return on assets also declined to (-)2.32 at the end of the third quarter of 2016-17.

A bank is placed under PCA framework based on the audited annual financial results and RBI's supervisory assessment. A month before putting IDBI under PCA, the Central bank had made it clear that the banks' capital, asset quality and profitability would be the basis of the PCA framework on which the banks would be monitored.

The bank had said that the action would be taken when a bank breaches the risk threshold that includes restriction on dividend payment/remittance of profits, restriction on branch expansion, higher provisions, restriction on management compensation and director's fees.

"The PCA framework would apply without exception to all banks operating in India including small banks and foreign banks operating through branches or subsidiaries based on breach of risk thresholds of identified indicators," the RBI had said.

At the end of December 2017, the IDBI reported its gross NPAs Rs 50,621 crore. Among the banks who are placed under RBI's PCA framework are: Dena Bank, Central Bank of India, Bank of Maharashtra, UCO Bank, IDBI Bank, Oriental Bank of Commerce, Indian Overseas Bank, Corporation Bank, Bank of India, Allahabad Bank and United Bank of India.