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Admin Reporter- NISHA

Mar 30 2018


Worried by IDBI Bank's poor health, RBI writes to Finmin

NEW DELHI: The Reserve Bank of India (RBI) has written to the finance ministry expressing concern over what it said was the poor financial position of state-run IDBI BankBSE -5.25 % and called on the government to take remedial action, according to a person with knowledge of the development. The letter, sent earlier this month, pointed to several shortcomings, including the recognition of non-performing assets. “It was found out during our inspection that the bank’s mechanism for identifying bad loans is also deficient,” the official cited the RBI as having said, adding that the bank’s non-performing assets could be higher than what’s been reported. “We have apprised the government about this situation.” RBI did not respond to queries. Asenior IDBI executive said the bank was not aware of any such communication and that the observations of the RBI could pertain to March 2017. “In the last few months, IDBI has done exceedingly well to tackle all issues,” he said. “We have set up a separate vertical for NPA management. We are sure to turn around the bank in the next one and a half years,” he said, adding that even the internal audit systems had been significantly strengthened. IDBI is under RBI’s prompt corrective action (PCA) framework. Gross non-performing loans were pegged at Rs 50,622 crore at the end of December 2017, 24.72% of advances. It reported a net loss of Rs 1,542 crore in the December 2017 quarter. PCA is triggered when certain norms are breached and results in the imposition of restrictions on banks, which have to try and reduce their NPAs. In the budget for FY17, the government had announced the transformation of IDBI Bank along the lines of Axis Bank by lowering its stake to less than 50%. That plan has not made much progress. The Prime Minister’s Office had even written a letter to the finance ministry last year seeking details of the proposed makeover. Instead, IDBI Bank has become the biggest beneficiary of the Rs 2.1 lakh crore bank recaptialisation plan announced in January. The government infused around Rs 10,610 crore in FY18 aimed at meeting the minimum common equity tier (CET) 1and Tier 1capital norms. Before the capital infusion, the government had a 77.8% stake in the bank. The letter comes amid the debate over the regulator’s oversight of state-run banks. RBI governor Urjit Patel had said earlier this month that the central bank did not have enough powers to regulate staterun banks effectively. “From the RBI’s standpoint, legislative changes to the BR (Banking Regulation) Act that make our banking regulatory powers fully ownership neutral–not piecemeal, but fully–is a minimum requirement,” he had said. This came in the wake of allegations that the RBI hadn’t done enough to detect the recent fraud at Punjab National Bank. IDBI Bank reported an alleged fraud earlier this week relating to loans of around Rs 772 crore to the stock exchanges after the Central Bureau of Investigation (CBI) booked a former general manager of the bank and two firms in the matter.

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