Out of PCA framework, IOB jumps 20%; Central Bank rises 11% on similar hope

NEW DELHI: Shares of Indian Overseas Bank soared nearly 20% in early Mumbai trading on Thursday as the lender came out of the Reserve Bank of India’s prompt corrective action (PCA) framework because of an improvement in asset quality.

At 09:25 (IST), shares of the state-owned bank traded at Rs 24.50 on the National Stock Exchange, registering a 19.80% jump from the previous close.

On Wednesday, RBI said it has removed the state-owned lender from the PCA framework and accordingly lifted certain curbs.

The decision was taken after the central bank’s board for financial supervision undertook a review of the Indian Overseas Bank’s results for the previous financial year and noted that the lender was not in breach of PCA norms.

In the April-June quarter, IOB reported a standalone profit of Rs 327 crore, a 1070% year-on-year jump, as the lender was aided by an improvement in recoveries.

The bank’s gross NPA ratio was at 11.48% as on June 30, an improvement from 13.90% a year ago, while the net NPA ratio declined to 3.15% from 5.10% earlier.

IOB had been placed under the PCA framework in October 2015 because of weak asset quality and a deterioration in operating metrics.

The PCA is a framework under which lenders with struggling financial indicators are placed under watch by RBI. The framework considers banks risky on the basis of three parameters – capital ratios, asset quality and profitability.

Buoyed by hope of being similarly removed from the PCA list by RBI, shares of state-owned lender Central Bank of India, the last remaining bank under PCA, jumped 11% to Rs 23.60 on NSE on Thursday.