Indian Overseas Bank shares hit 20% upper circuit after RBI lifts PCA framework

Shares of Indian Overseas Bank were locked in 20 per cent upper circuit at Rs 24.60 on Thursday as the Reserve Bank of India (RBI) has removed the lender from the PCA (prompt corrective action) framework.

Shares of the Chennai-based Indian Overseas Bank (IOB) were locked in 20 per cent upper circuit at Rs 24.60 on the BSE during early morning trading on Thursday and later jumped 12.93% to Rs 23.15 after the Reserve Bank decided to remove the public sector bank from its prompt corrective action (PCA) framework on September 29, 2021, subject to certain conditions and continuous monitoring. 

The removal of IOB from its PCA framework has been accounted to its improvements in asset quality, as reviewed by the Board of Financial Supervision. Furthermore, the bank has assured commitment to comply with the norms of minimum regulatory capital norms, net NPA and leverage ratio on an ongoing basis.

 “The performance of the Indian Overseas Bank, currently under the Prompt Corrective Action Framework (PCAF) of RBI, was reviewed by the Board for Financial Supervision. It was noted that as per its published results for the year ended March 31, 2021, the bank is not in breach of the PCA parameters,” RBI announced in a statement.

“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,” the statement further added.

IOB was placed under RBI’s prompt corrective action framework in October 2015 on account of high Net-Performing Assets (NPAs) and negative Return on Assets (RoA). It was also prohibited from increasing risk-weighted assets. But the Bank’s financial and credit profile has improved over the years as the public sector lender’s NPA ratio was at 11.48% as of June 30, an improvement from 13.90% a year ago, while the net NPA ratio declined to 3.15% from 5.10% earlier. It posted a net profit of Rs 831 crore in the financial year 2021.

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