With lacklustre response from potential investors to state-run IDBI Bank’s plan for a qualified institutional placement (QIP), the government is weighing its options, including a public offering as part of a strategy to reduce its holding in the bank to below 50% from about 74% now over a period of time.
“There is not much interest in the QIP now, but it is not the only option,” a government official said. The government had given its nod to a Rs 3,771-crore QIP by the bank. The stake sale through QIP is part of the bank’s plan to raise Rs 8,000 crore in equity offerings over time through various routes.
On July 2, another official had told FE that that Asian Development Bank concluded due diligence of IDBI Bank for the QIP. Officials of the bank were also in talks with International Finance Corporation, Abu Dhabi Investment Authority and the Singapore government’s wealth funds Temasek and GIC for the QIP. According to rules, at least five investors need to subscribe to a QIP.
Unstable markets and sharp corrections in banking stocks following the Reserve Bank of India mandated asset quality review (AQR) and the resultant increase in bad loans have contributed to the unsuccessful QIP attempt by the bank.
IDBI Bank’s gross NPA nearly doubled to Rs 27,275 crore as on June 30, 2016 from Rs 14,112 crore a year ago. The bank’s gross NPAs as a percentage of total advances stood at 11.92% in Q1FY17 as against 6.64% in Q1FY16. The surge in bad loans resulted in a loss of Rs 3,665 crore for the bank in FY16 as compared to Rs 873 crore net profit in FY15. This pulled down the stock of the lender to Rs 47.4/share on February 12 this year as against Rs 95.7/share quoted on December 3, 2015. The stock closed at Rs 74 on the BSE, down 2.05% on Tuesday.
However, it will take some time before the bank, in accordance with the FY17 Budget announcement, brings down the government’s holding from 73.98% to below 50% and loses its public sector tag. The stake sale would depend on market conditions and not necessarily before March 31, 2017, the official said.
Besides the QIP, the bank is also looking at raising capital through preference share issue, rights issue or follow-on public offer as part of its overall Rs 8,000-crore equity offering plan.