IDBI Bank Q4 net loss widens in March quarter as bad loans surge

NPA provisions balloon to Rs 5,333 cr in Q4

Weighed down by heavy provisions for bad loans, ailing IDBI Bank’s net loss grew to Rs 3,199 crore in the March quarter. Its loss in the same quarter of 2016 was Rs 1,735 crore.

Operating profit in the quarter declined to Rs 1,389 crore, from Rs 1,595 crore a year before.

Its share price closed 7.7 per cent down at Rs 70 on the BSE exchange. The loss for 2016-17 stood at Rs 5,158 crore, up from Rs 3,664 crore in 2015-16.

The Reserve Bank of India (RBI) has already put IDBI under a prompt corrective action (PCA) regime, due to the high level of net non-performing assets (NPAs) and negative return on assets. This would mean taking mandatory corrective action, such as raising of capital levels, restricting dividends and branch expansion. In an extreme scenario, the bank might have to put restrictions on management compensation.

The bank’s common equity tier-I ratio, including capital conservation buffer (CCB) ratio, was at 5.64 per cent, substantially lower than the regulatory minimum of eight per cent. This has raised doubts in the minds of some analysts whether the bank will be allowed to dip into its reserves to pay the coupon towards its Rs 2,000 crore of additional tier-I bonds. 

In a similar situation in February this year, the RBI had sort of bailed out Central Bank of India, United Bank of India and Indian Overseas Bank by allowing these banks to dip into their statutory reserves to pay coupons. These banks had wiped out their other reserves by incurring losses, but their tier-I ratios were healthier than IDBI Bank.  

The additional tier-I bonds have a loss absorption clause that enables banks to forego coupon payment if under stress. The RBI has set the floor on tier-1 ratio at 5.5 per cent till March 2019 to honour these bonds. IDBI Bank’s tier-I ratio, including CCB ratio (minimum required 2.2 per cent), at 5.64 per cent would mean the bank might have fallen below the regulatory level, say analysts.

Net interest income for the quarter rose 14 per cent to Rs 1,633 crore from a year before.

Provision for NPAs grew multi-fold to Rs 5,333 crore, from Rs 185 crore in the March quarter of 2015-16. The provision coverage ratio was 54.96 per cent at end-March. Gross NPAs jumped to Rs 44,752 crore in end-March (21.25 per cent), up from Rs 24,875 crore (11 per cent) a year before.

Consecutively, too, gross NPAs were up from Rs 35,245 crore (15.16 per cent) at end-December 2016. The net NPAs were up at Rs 25,205 crore (13.2 per cent) in March, from Rs 14,643 crore (6.8 per cent) in March 2016.

The capital adequacy ratio was 10.7 per cent, with tier-I capital at 5.64 per cent. Its CCB was 0.14 per cent, against the regulatory minimum of 1.25 per cent.