Govt makes fresh attempt to revive IDBI Bank

Reserve Bank of India last month put IDBI Bank under watch by initiating Prompt Corrective Action

Privatisation of IDBI Bank might be further delayed, with the government making a fresh attempt to revive the state-owned lender after fresh slippages were reported over the last two quarters that derailed the stake sale plan. The recovery plan includes capitalisation through non-core assets sale, hiving off subsidiaries, controlling expenses and remodelling the business.
 
The qualified institutional placement (QIP) plan was put off after the bank reported an increase in the level of non-performing assets (NPAs).
 
“Efforts are on to turn around the bank as we do not want to sell it at a throwaway price. The QIP couldn’t take off after the bank’s performance worsened over the last two quarters. Seven merchant bankers were appointed for the QIP,” said a senior government official. He said since a complete turnaround will take a long time, the government is waiting till it can capture the value from the sake. “At the moment we will get a ridiculous price. So it is better to wait a little,” he said.

 

IDBI Bank saw its net loss widen to Rs 3,199.76 crore in the fourth quarter of 2016-17 compared to a net loss of Rs 1,735.81 crore in the corresponding quarter last year. Its asset quality worsened with gross NPAs touching 21.25 per cent of gross advances by the end of March, from 15.16 per cent in the third quarter ended December 31.
 
 
he government holds over 70 per cent stake in the bank. The Reserve Bank of India (RBI) last month put IDBI Bank under watch by initiating Prompt Corrective Action, putting various restrictions on the lender including on fresh loans and dividend distribution.

 
he government has suggested that IDBI Bank should exit from associate companies and subsidiaries. The state-owned bank may sell stake in IDBI Federal Life Insurance, IDBI Capital Market Services, IDBI Intech, IDBI MF Trustee Co and IDBI Trusteeship Services.
 
“It should also exit from SIDBI, from which it could garner Rs 3,000 crore,” said another official. In addition, government has also asked it to offload real estate assets.
 
The bank has also set up a separate cell called NPA management and credit monitoring group to monitor bad loans. Domestic rating agency Icra downgraded various debt instruments of the the bank on account of weak profitability and deteriorating asset quality that resulted in erosion of its capital.

 
Finance Minister Arun Jaitley had in his Budget speech last year said ‘the government was committed to reducing its stake in IDBI Bank to under 50 per cent.  Life Insurance Corporation of India (LIC) will infuse Rs 406.9 crore in IDBI Bank increasing its stake 14.25 per cent in the state-owned lender from 13.76 per cent at present. According to the proposal, IDBI Bank’s gross non-performing assets must be brought below the 3 per cent-level by FY19. For the proposed            4,000-crore QIP, the bank had reportedly appointed seven merchant bankers — Deutsche Bank, Credit Suisse, SBI Caps, Bank of America Merrill Lynch, HSBC India, Citigroup and IDBI Capital Markets.

 
As part of the recapitalisation plan, the government will infuse Rs 10,000 crore in public sector banks struggling with mounting NPAs.
 
 
A section of officers and employees of IDBI Bank went on a strike last year protesting against the government’s plan to reduce its stake to below 50 per cent. The Bank has around 17,500 employees.