Why Street looked past IDBI Bank's NPA divergence

With gross bad loan ratio already over 21%, analysts say situation can't get worse

On May 13, when the Street came to know that YES Bank’s non-performing assets (NPA) figure for FY16 was higher from the Reserve Bank of India’s (RBI) assessment, the bank’s stock plunged 6 per cent. Axis Bank and ICICI Bank stocks had also taken a beating for this reason.

However, that wasn’t the case with IDBI Bank. On Tuesday evening, the Street came to know about IDBI’s Rs 6,816-crore divergence in reporting of FY16’s NPA. The bank reported a gross NPA of Rs 24,875 crore, while the RBI assessed it at Rs 31,692 crore, a divergence of 27 per cent. On the contrary, the bank’s stock rose 1.3 per cent on Wednesday. 

Analysts say with the bank being caught in its weakest spot, with FY17 gross NPA at 21.25 per cent, the Street is perhaps not wanting to attribute much to the revealed divergence in the annual report. The divergence in bad loan provisioning for FY16 was Rs 2,061 crore. While the bank had provided for Rs 10,232 crore towards bad loans in FY16, the RBI’s assessment pegs it at Rs 12,292 crore. Without accounting for this, the FY16 gross NPA ratio stood at 10.98 per cent. Had IDBI accounted for the higher provisions, net losses would have increased from Rs 3,665 crore to Rs 5,012 crore in FY16. 

Analysts say while the three private banks had provided explanations to ease investor worries, their FY17 performance also bettered those of FY16. 

The latter wasn’t the case with IDBI Bank. For instance, when a majority of corporate-facing banks turned from loss to profit in FY17, IDBI was still stuck in loss zone. Net loss in FY17 widened to Rs 5,158 crore, up 41 per cent. Key operational parameters like net interest income and pre-provisioning profit fell 6 per cent and 15 per cent year-on-year, respectively.  Net interest margin also declined from 1.88 per cent in FY16 to 1.62 per cent in FY17. Even as provisioning for bad loans remained elevated at Rs 13,208 crore, the gross NPA ratio increased to 21.25 per cent (from 10.98 per cent in FY16) and net NPA ratio to 13.21 per cent (6.78 per cent).

“This is why the Street reacted differently to IDBI Bank’s bad loan divergence”, said an analyst from a domestic brokerage. 

Being one of the first to fall under the RBI’s prompt corrective action process for a mounting bad loan mess, several initiatives are underway. 

Analysts at Antique Stock Broking highlight that with a wide range of non-core assets, the bank is well-placed to monetise these. Whether these will change the course for the bank only time will answer.