IDBI Bank expects its gross NPAs to come down to 15% by FY22-end

Growth in loan book and transfer of some bad assets to NARC will fuel the reduction in gross NPAs

The gross bad loans ratio of IDBI Bank may come down to 15 per cent of its loan book by the end of FY22 from the current 22.71 per cent aided by growth in the advances, now that it has come out of prompt corrective action (PCA) of the Reserve Bank of India (RBI).

Also, it is looking to transfer around Rs 11,000 crore-Rs 12,000 crore of bad loans, out of which Rs 3,500-4,000 crore will be accounts that have been written off, and the rest Rs 7,000 crore- Rs 8,000 crore will be on balance sheet loans, to the National Asset Reconstruction Company (NARC), which will further help it in reducing its gross NPAs. 

In Q1FY22, the lender reported gross NPAs of 22.71 per cent, up 34 bps from March quarter but down 410 bps from last year’s June quarter. On the other hand, net NPAs of the lender showed improvement both on a YoY and sequential basis. As of June quarter, net NPAs stood at 1.67 per cent, down 30 bps from March quarter and 188 bps from last year June quarter. 

Rakesh Sharma, MD & CEO, IDBI Bank said, “We have been reducing our gross NPAs by recoveries and write-offs but still the percentage is not coming down significantly due to the denominator issue. Once our advances start growing, it will help in reducing the gross NPAs ratio. Around 4-5 per cent reduction will be because of growth in advances and transfer of bad assets to NARC will further reduce the gross NPAs by 5-6 per cent”. 

The bank is also looking to grow its corporate loan book now that it is out of RBI’s PAC. Its corporate book had seen significant contraction as it could not disburse loans to corporates. Last year as of the June quarter, the corporate book of the lender was Rs 71,286 crore and by this year’s June quarter, the corporate book has come down to Rs 60,170 crore. 

“In the past, our concentration was more in infrastructure advances and we burnt our fingers there. But, we have expertise in doing corporate advances and we will continue to do that but the focus will be more on the mid-corporate segment. We are looking to grow our loan book by 8-10 per cent”, said Sharma. 

The bank has onboarded more than 80 corporates and has made sanctions but disbursements have not taken place. The clients are spread across various sectors. “We are sector agnostic but the onboarding norms defer based on our risk perception of the sectors”, the bank management said. 

The bank’s board-approved policy is that its retail portfolio will not go below 55 per cent of its loan book. 

The bank reported a net profit of Rs 603 crore in the June quarter of FY20, up 318 per cent year-0n-year (YoY) and 18 per cent sequentially, aided by higher other income. In the year-ago period, it had reported a net profit of Rs 144 crore. 

Net interest income (NII) of the lender jumped 41 per cent YoY to Rs 2,506 crore but sequentially it was down 23 per cent. Its net interest margin (NIM) increased by 125 basis points (bps) to 4.06 per cent in Q1FY22 as against 2.81 per cent in the year-ago period. 

Provisions and contingencies were significantly higher on a YoY basis but sequentially provisions were down. In Q1FY22, provisions made by the lender increased by 97 per cent YoY to Rs 1,752 crore. In Q4FY21, its provisions were to the tune of Rs 2,457 crore. As of June 30, 2021, it is holding covid related provisions of Rs 863 crore. 

Its provision coverage ratio stood at 97.42 per cent at the end of Q1FY22 as against 96.90 per cent in the March quarter. Out of total gross NPAs of Rs 35,594 crore,  the bank has provided in full for Rs 32,817 crore. 

“The bank has geared itself on all fronts to meet the challenges imposed by covid including the likelihood of rise in customer defaults and an increase in provisioning requirements”, it said in a statement. 

Deposits accretion of the lender was down 3.7 per cent sequentially to Rs 2.22 trillion as of June quarter. Share of low-cost deposits of the bank improved to 52.44 per cent in the June quarter as against 50.45 per cent in the March quarter. On the other hand, loan book of the bank saw degrowth of 4 per cent sequentially to Rs 1.22 trillion.