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Will IOB be out of RBI’s PCA framework soon ?

Indian Overseas Bank (IOB) has posted a net profit for a second quarter in a row with a substantial improvement in reducing its non-performing assets bolstering its chance of coming out of the Reserve Bank of India prompt corrective action (PCA) framework.

On Thursday, IOB posted a net profit of Rs. 120.69 crore for the first quarter of FY21 against a net loss of Rs. 342.08 crore recorded for the same quarter last year. 

After a gap of 18 quarters, the public sector lender posted a net profit of Rs. 143.79 crore during the March quarter. The bank has now sustained this profitability, which is one of the key criteria for the RBI to review its PCA framework.

Operating profit of the bank on a year-on-year basis grew by 32 per cent to Rs. 1,094.15 crore (Rs. 828.16 crore) during the first quarter. Total income of the bank grew by 5 per cent to Rs. 5,233.63 crore (Rs. 5,006.48 crore), which includes a 40 per cent growth in other income of Rs. 931.79 crore (Rs. 670.09 crore). 

The bank also displayed a substantial improvement in the asset quality, which is another key criteria for the RBI. Gross non-performing assets as a percentage of total assets fell to 13.90 per cent during the quarter from 22.53 per cent in the year ago quarter. Net NPA dropped to 5.10 per cent (11.04 per cent). 

Consequently, the bank’s provisions (other than tax) and contingencies reduced by 16 per cent to Rs. 969.52 crore (Rs.1,157.82 crore) during the quarter. 

Thanks to the government infused fresh capital of Rs. 4,360 crore in January 2020, IOB’s common equity Tier-1 (CET 1) capital stands at 8.38% as of June 2020 well above the regulatory requirement of 5.50 per cent. 

Total deposits of the bank as on June quarter stood at Rs. 225,546 crore (Rs. 221,171 crore) while gross advances during the period stood at Rs. 131,565 crore (Rs.147,606 crore). 

With two consequent quarters of profits, reduced NPAs and adequate capital, IOB’s next stop will be reaching out to RBI to review the PCA framework. 

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