From being a lender sending SOS calls six years ago, IDBI Bank has clawed its way into becoming one of attractive investment options for strategic investors, so much so, that the investors may not have to infuse capital after acquisition.
No wonder, the stock market has also rewarded the bank. In the past six months, the stock price has risen 50.57% to Rs 52.70.
The divestment process of the bank is well underway and is expected to spillover into FY24 even as the government has received multiple expressions of interest (EoIs) from domestic and foreign investors for the 60.72% stake. The government and the Life Insurance Corporation of India (LIC) together hold 94.71% stake in the lender. The government in 2018 cleared the decks for LIC to takeover majority stake in IDBI Bank and the acquisition was completed in 2019.
Foreign investors such as Sumitomo Mitsui Banking Corporation Group, Oaktree Capital Management and Fairfax Group are doing rounds for the potential takeover, as per some media reports. The bank maintains that it has not received any communication from the government on the divestment process after floating the EOI, Rakesh Sharma, MD & CEO, IDBI Bank said.
Meanwhile, the bank is showing good signs of growth in terms of its financials each quarter as it announced its highest-ever quarterly net profit of Rs 927 crore in Q3FY23 after posting consecutive losses for several quarters in a row in the crisis years.
The bank has significantly improved its capital adequacy ratio improved to 20.14% as on December 31, which has dropped as low as 6.22% as of September 30, 2018. Sharma is confident that banks is sufficiently capitalised and the strategic investors, which will come in through the divestment process, will not have to raise or infuse capital for at least two years to support the current growth levels. The lender exceeded its guidance, with credit growth of 17% in Q3FY23, with 67% share of retail loans, although the bank has also seen good growth corporate advances after coming out of PCA.
“We were taking big exposure on large corporate loans in the pre-PCA period. We are restricting lending to higher rated accounts, minimum investment grade or ‘A’ rated and above. Whenever we are taking corporate exposure, we make sure it is not chunky and we are limiting to Rs 100-250 crore, depending on the size of the company. That change is made in the policy,” Sharma said.
The bank will not shy away from lending to infrastructure companies going ahead, especially with the push on infrastructure creation by the government, but its policy will remain the same, that is to lend to higher rated companies and avoiding concentrated exposure, he said. This has led to improvement on the asset quality front, the gross NPA levels of the lender continue to remain in double digits, but significantly lower than the over 30% levels seen in 2018. The bank provides for almost entirety of its bad loans at gross level, with its provision coverage ratio at 98% as of December 31. This has enabled the bank to improve its net NPA ratio, which is in line with some of the large private sector banks. The lender is taking a cautious approach on asset quality side, as although the slippages and asset quality ratios are improving, the bank is making higher provisions on standard assets.
The bank has led the way in clean up of bad assets in its balance sheet as the lender completed first transfer of NPA account Jaypee Infratech to National Asset Reconstruction Company (NARCL). The bank has made recoveries of 45% from the transfer of the asset. Besides, the bank identified bad assets to the tune of Rs 10-11,000 crore to NARCL, which will aid the lender to further trim its gross NPA ratio by 4-5%.
The RBI in May 2017 invoked PCA on IDBI Bank due to its bad loans and return on assets (ROA). The bank’s gross NPA levels peaked to 31.78% in Q2FY18 while its net NPA was at the highest at 18.76% in Q1FY18. The lender also saw its capital adequacy ratio had fallen below the regulatory requirement of 9% for three quarters in the past four years. The bank came out of the PCA in 2021 after improvement in its bad loans ratio.
“The bank’s diversified portfolio with a strong monitoring process has considerably improved our asset book. Overall quarter by quarter the bank has been showing improved results and more importantly, we have been improving the balance sheet so that we can meet any meet any unforeseen events and the bank remains resilient,” Sharma said