Tag: capital markets

After its exit from Reserve Bank’s stringent prompt corrective action (PCA) framework, IDBI Bank is looking to return to the growth league as the government looks to sell it to a strategic investor and current promoter LIC seeks attractive valuations in its upcoming IPO.

The bank’s capital adequacy ratio is 14.77 per cent and has earned profit continuously for the last five quarters while its other ratios such as liquidity coverage ratio are much above the RBI’s norms.

Under PCA

Under the PCA imposed by RBI in 2017, the bank’s balance-sheet shrank as it could not extend loans to corporates and was not allowed to open branches.

It used the four years of PCA to restructure its business, cut exposure to large loans and bulk deposits and create verticals for various lending businesses to speed up turnaround time.

The bank has worked for the last four years on various parameters, done recoveries and raised its provision coverage ratio to 97%.

The lender is looking at Rs 4,000 crore of recoveries in the next fiscal.

Retail loans

The share of corporate loans, which was about 67% four years back when it went under PCR, has shrunk to 40% now with 60% loans being retail. The bank is now targeting 55% loan book as retail and rest corporate. It wants to maintain low costs retail deposits at 48% of total deposits.

As a result, the institution has transformed from a project financier to a retail lender.

The company is looking to target the mid-corporate segment and will now avoid overexposure to certain industries and grow the business in a calibrated manner.

It sees over 12% growth in retail loans and 8-10% rise in corporate loans.

Growth

IDBI Bank plans to ramp up growth, regain lost corporate customers and sell stakes in its insurance, capital markets and technology arms. The lender plans to grow the loan book at 8-10% in the next fiscal and raise net interest margin beyond 3%.

The bank will focus on lending to manufacturing and maintain selective exposure to infrastructure.

The lender is looking to bring down the cost to income ratio to below 50% by pushing up income.

Stake sales

It willing to sell a 25% stake in Ageas Federal Life to the foreign partner if they wanted to acquire the stake after the increase in foreign direct investment (FDI) is allowed and also in other subsidiaries.

IDBI Fintech is a 100% subsidiary of the bank, which provides end-to-end IT services to IDBI Bank, its group companies, its ultimate parent company LIC, as well as other external clients in the BFSI sector. The company was currently in the process of appointing merchant bankers to help identify a strategic joint venture partner. IDBI Capital Markets is the merchant banking arm of IDBI Bank and the lender is looking for a strategic partner in this company as well.

Borrowings

Earlier this month, IDBI Bank’s board approved borrowing up to Rs 8,000 crore through rupee-denominated bonds in one or two tranches for FY2021-22.

Of the total, the bank will borrow up to Rs 3,000 crore via additional tier-I (AT1) bonds in one or more tranches, and up to Rs 1,000 crore in senior/infrastructure bonds by way of private placement.