Shares of Indian Overseas Bank (IOB) hit the upper circuit of 20 per cent briefly on the stock market on Thursday. The public sector bank’s shares went up to Rs 24.50 in early trade.

At 12:05 pm, IOB shares were trading 13.41 per cent higher on the Bombay Stock Exchange (BSE) at Rs 23.25. On the National Stock Exchange (NSE), the shares of IOB were trading 13.69 per cent higher.

WHY IOB SHARES HIT UPPER CIRCUIT?

Shares of public sector bank hit the upper circuit on the stock market after the Reserve Bank of India (RBI) removed restriction on the bank under the prompt corrective action (PCA) framework.

The central bank removed restrictions on the bank, citing an improvement in the bank’s financial and credit profile.

In a statement dated September 29, the RBI said, “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.”

The central bank also noted in its statement that 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.

The bank has also appraised the RBI of the structure and systemic improvements that it has carried out to help the bank continue meeting the norms in future.

“Taking all the above into consideration, it has been decided that Indian Overseas Bank is taken out of the PCA restrictions subject to certain conditions and continuous monitoring,” the RBI said.

The removal of the restrictions is a big relief for IOB as it will no longer face restrictions related to lending. IOB was placed under the PCA framework in 2015 due to the high rate of NPAs and negative returns on assets.

However, the bank has been performing well for the last four quarters. The annual performance in FY21 was also in line with the requirements to exit the PCA framework. It had posted a net profit of Rs 831 crore in FY21 compared to a loss of over Rs 450 crore in FY15.

The bank’s NPAs have also declined substantially from the levels seen in March 2015. With the removal of IOB, the Central Bank of India is the only financial institution under the PCA framework. The bank’s shares also rose nearly 10 per cent today.