Private lender IDBI Bank is hopeful of reporting a profit by the third quarter-ending December 31, 2019 and is hoping to raise at least around Rs 8,000 crore via fresh equity capital and sale of its life insurance and mutual fund businesses.
The bank, in which Life Insurance Corporation of India holds 51 per cent stake, reported a narrower net loss of Rs 4,918 crore in January-March, versus a loss of Rs 5,663 crore loss in the same period a year ago, helped by a lower provisions for bad loans.
The Reserve Bank of India had invoked prompt corrective action (PCA) framework against IDBI Bank in May 2017 in the backdrop of a sharp rise in bad loans. Under PCA, banks have restrictions on expanding their business and have to initiate measures to reduce their non-performing assets, while the promoter must also bring in fresh capital.
At the end of March 2019, IDBI Bank’s net non-performing assets (NPA) stood at Rs 14,837 crore or 10.11 per cent, versus Rs 28,665 crore or 16.69 per cent, a year ago.
Rakesh Sharma, the MD and CEO of IDBI Bank is hopeful of reducing the bank’s NPAs by December and has a well thought out action plan to ensure it will come out of the PCA by March next year.
“By June 30, our net NPA will come below 9 per cent and by September 30, our net NPA should be below 6 per cent. As far as profitability is concerned, hopefully in Q3 or Q4 we should be in profit. So, that way we will be complying with all the parameters. As of now, we are compliant with capital leveraging ratio also,” said Sharma.
The company could only recover around Rs 1,900 crore in the March quarter, versus a targeted around Rs 4,500 crore, due to delays in resolution of some of the large bankruptcy cases in the National Company Law Tribunal. In the current year ending March 31, 2020, IDBI Bank has guided for recoveries worth Rs 13,000 crore.
State-run insurance behemoth LIC completed the acquisition of 51 per cent controlling stake in IDBI Bank in January 2019, infusing Rs 21,624 crore in the lender.
LIC is the country’s largest life insurance company, and it also has a mutual fund arm. In that backdrop, IDBI has put its own mutual fund subsidiary as well as IDBI Federal Life Insurance up for sale. The bank is targeting around Rs 1,500 crore to Rs 2,000 crore via sale of these non-core assets. At the same time, it hopes to raise around Rs 6,500 crore via fresh equity fund raising and it also has board approval to raise up to Rs 3,000 crore via tier II bonds.
“Regarding the mutual fund (stake sale), we have already come out with an advertisement, transaction advisor has already asked for the expression of interest. As you know, there is a regulatory restriction of completing the entire transaction by January 2020. We are on course for that and that should happen in the next four-five months. Regarding IDBI Federal Life Insurance also, we had initiated the process earlier, but it was kept on hold when LIC came on board. We have discussed with the other shareholders and the process has been re-initiated. Latest by Q3, we should be in the position to divest the stake,” said Gurudeo Yadwadkar, deputy MD of IDBI Bank.
IDBI Bank sees a lot of synergies and business potential with its largest shareholder LIC. The two have entered into a service level agreement to offer LIC’s insurance products through IDBI Bank’s branches. The bank as a corporate agent of LIC would get a window to provide LIC’s entire gamut of insurance offerings to the bank’s 1.80 crore customer base spread over 1,800 branches. Furthermore, it will also function as a point for premium payments and sale of LIC products, thereby gaining from fees and float income.
IDBI Bank is also focusing on growing its retail business and improving its asset quality. It also hopes to focus on recoveries from written off cases, improving provision coverage and containing slippages.
