IDBI Bank mulls buyback of $1-bn overseas bonds as part of turnaround plan

Public sector IDBI Bank is considering buying back bonds worth $1.5 billion as it winds down its Dubai branch, part of its rationalisation of operations under a turnaround plan.  

These bonds will be up for redemption in the next 2-2.5 years. Sources said the details for buyback were being worked and the bonds would not be bought back in one go.
 

An IDBI Bank executive confirmed the move but declined to elaborate.

IDIBI Bank executives said the lender would ensure that customers and investors were serviced without disruption.

Sources said the buyback activity would be spread over quarters and would be done in small tranches for reasons of absorption. They added that these bonds were part of liabilities in the bank’s books.

The government has directed public sector banks to consolidate their overseas operations. This means that several overseas branches and offices of state-run banks will either be shut down or merged.

Canara Bank is also closing its three foreign branches in Leicester (UK), Bahrain and Shanghai. It will sell a 50 per cent stake in its joint venture in Russia with State Bank of India.

Public sector banks take a view on branch operations, including their revival, based on commercial considerations.

According to the government’s response in Parliament, public sector banks are currently operating 159 branches in foreign countries, of which 41 branches were in loss in 2016-17.

IDBI Bank’s Dubai branch was its first overseas branch at the Dubai International Financial Centre (DIFC). The lender also has an IFSC Banking Unit (IBU) at the International Financial Services Centre at the GIFT City.

Through these branches, the lender provides a range of corporate banking services, including external commercial borrowings (ECB), foreign currency loans (FCL), syndication of ECB/FCL and trade finance products to cater to requirements of their Indian clients for their domestic and international ventures.

IDBI Bank also recalled its Tier-I bonds. It, along with Bank of Maharashtra, Oriental Bank of Commerce and Dena Bank, recalled bonds worth Rs 109 billion after the government prompted them to do so. The move was expected to save interest costs.

IDBI Bank, which is under the Reserve Bank of India’s prompt corrective action plan, has sold its non-core assets to strengthen its balance sheet, much like other loss-making public sector banks.

The bank has offloaded its stake in financial institutions such as the National Stock Exchange, Clearing Corporation of India and Small Industries Development Bank of India. The lender sold a commercial building for Rs 9 billion, taking the total non-core asset sales to over Rs 41 billion in 2017-18.

The government has provided recapitalisation worth Rs 106.1 billion to IDBI Bank, the highest among public sector banks. But these efforts seem insufficient, given the bank’s high net non-performing assets (NPAs) worth Rs 293.5 billion as of December 2017, which is 16 per cent of its net advances.