Tag: idbi bank

Voda Idea lenders fret over ‘too big to fail’ telco giant, BFSI News, ET BFSI

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Mumbai: A day after Kumar Mangalam Birla’s letter warning that Vodafone Idea (VIL) may reach an “irretrievable point of collapse” became public, banks are worried about the fate of the telecom major which, they say, is “too big to fail”.

Lenders, both Indian and global, have an exposure of Rs 1.8 lakh crore. A large part of this is in the form of guarantees. Some private lenders with a funded exposure have already started making provisions. However, the bulk of the exposure is to public sector banks.

If VIL fails to repay its dues to the government and these guarantees are invoked, it would immediately turn into debt and would soon be classified as a non-performing asset. The hit on public sector banks will not be as large as their exposure because in recent years, lenders have been demanding a substantially higher cash margin from Vodafone for their guarantees. IDBI Bank is understood to have up to 40% margins for the guarantees it has extended. But even then it will be large enough to wipe out profits for many.

For banks, recovery of debt is contingent on VIL remaining operational and retaining customers. While the company continues to have close to a fourth of the Indian market, its situation could change overnight if there is a default. According to bankers, the insolvency process can work only when there are buyers. In the case of VIL, the Rs 53,000-crore AGR (adjusted gross revenue) dues to the Centre are a deterrent. This is despite Birla being willing to write down his entire equity.

The government dues cannot be avoided as the Centre cannot make an exception for one company. Even in insolvency cases, the telecom department has claimed its dues to be that of a financial creditor although there have been attempts to mark them as operational creditors. The uncertainty over telecom department’s claims, which is already being experienced by lenders in the Reliance Communication insolvency case, would makes telecom resolutions a challenge. Lenders do not want to risk insolvency as this would result in the exit of customers which was the case with RCom.

Lenders say besides the company’s debt obligations being equal to 1.5% of the banking sector’s credit, VIL is a large telecom infrastructure provider. Several business applications run on their networks and the company is one of the largest providers of “internet of things” service. A bank executive said insolvency would be a worst-case scenario as there is a risk of customers migrating.



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New IDBI owners may get RBI road map to cut stake, BFSI News, ET BFSI

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NEW DELHI: The Reserve Bank of India (RBI) is expected to provide a road map to the new owners of IDBI Bank for reducing their stake as the government seeks to sell its equity, along with shares held by Life Insurance Corporation (LIC) of India, by the end of the current fiscal year.

Although the RBI has not firmed up its views on new licensing norms for private banks, announcement of the new structure may help generate more interest in the lender, which the Centre has been seeking to reposition for two decades but with little success.

In the past, the RBI had indicated that the government’s stake sale and announcement of the new norms were not linked. Sources, however, said that the government has been in dialogue with the RBI on stake sale and the regulator was aware of the need to provide a road map for comfort to potential buyers.

The current guidelines stipulate 40% minimum shareholding in terms of the paid up capital or voting rights. Over 10 years, this needs to be diluted to 20-30% and further reduced to 15-26% between 12 and 15 years, depending on the licence vintage. An internal group set up by the RBI had proposed reworking these, apart from allowing corporate houses into the space.

Many of the bidders may seek clarity on these aspects. Recently, the department of investment and public asset management had said that the government and LIC would decide on the extent of stake sale during the process of finalising the deal.

Although private investors are keen that the government holds no stake, something that NITI Aayog too had noted in some of its recommendations, government sources said, the idea was to leave it to bidders to decide the best course of action. “Someone may want majority control, while someone may like to do with a lower stake. Let the bidders decide,” said a source.

The government currently holds 45.5% in the financial institution-turned-universal bank with LIC’s shareholding pegged at 49.2%. On Friday, the bank’s share rose 0.4% to close at Rs 37.9 on BSE but is still lower than LIC’s acquisition price. LIC had acquired shares in IDBI Bank in three tranches.



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IDBI Bank net up fourfold on recovery of Kingfisher dues, higher other income

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The net interest margin (NIM) of the lender improved 125 basis points (bps) YoY to 4.06%, but declined 108 bps, sequentially.

Private lender IDBI Bank on Wednesday reported a 318% year-on-year (y-o-y) jump in net profit to Rs 603 crore for the quarter ended June 2021, due to higher other income and recovery from Kingfisher Airlines account. The strong bottom-line was reported by the lender despite a 84% y-o-y increase in provisioning to Rs 2,173 crore.

It’s operating profit increased 109% year on year (YoY) to Rs 2,776 crore on the back of 41% y-o-y growth in the net interest income (NII) to Rs 2,506 crore. Total recovery from Kingfisher Airlines during the quarter was Rs 733 crore, of which the interest portion of Rs 455 crore got reflected in NII and the principal amount of Rs 278 crore was shown in other income component by the lender.

Other income increased 63% YoY and 39% quarter on quarter (QoQ) to Rs 1,639 crore, which included commission exchange and brokerage of Rs 404 crore and treasury income Rs 690 crore, among others. The net interest margin (NIM) of the lender improved 125 basis points (bps) YoY to 4.06%, but declined 108 bps, sequentially.

Rakesh Sharma, MD and CEO, IDBI Bank, said, “The bank’s capital and liquidity position is strong and would continue to be the focus area. We are expecting credit growth of 8-10% by the end of March 2022.”

The asset quality remained a mixed bag during the June quarter. The gross non-performing assets (NPAs) ratio of the lender increased 34 basis points to 22.71%, compared to gross NPAs of 22.37% in the previous quarter. However, net NPAs ratio improved 30 basis points to 1.67% from 1.97% in the March quarter. “We are expecting GNPAs to come below 15% due to loans being transferred to National Asset Reconstruction Company (NARCL) and expected loan growth,” Sharma said.

Recovery from technically written off accounts improved to Rs 331 crore during the June quarter, compared to Rs 117 crore in Q1FY21 and Rs 269 crore in Q4FY21.

The lender has strengthened its balance sheet by increasing provision coverage ratio (PCR) by 271 basis points to 97.42% in June 2021. While the cost of deposits reduced by 93 basis points YoY to 3.72%, the cost of funds came down 98 basis points YoY to 3.98%. Similarly, cost to net income ratio decreased by 1923 basis points YoY to 33.02% during the June quarter.

Advances declined 6% YoY and 3% QoQ to Rs 1.56 lakh crore. However, the retail corporate ratio in gross advances improved to 62:38 from 57:43 as on June 2020. As the lender has come out of the Reserve Bank of India’s prompt corrective action framework, the bank aims to grow its base in corporate credit. “We will look to engage with corporates in cautious and calibrated manner,” Sharma said.

Deposits grew 1% YoY to Rs 2.2 lakh crore, but declined 3% sequentially. The share of current account savings account (CASA) in total deposits improved 489 basis points YoY to 52.44%, compared to 47.55 in June 2020. IDBI Bank is working towards realising business synergies with LIC.

For the quarter, the bank has done a premium collection of Rs 32 crore for LIC and earned a fee income of Rs 5 crore, it said. The capital adequacy ratio (CAR) stood at 16.23% during the June quarter, compared to 13.37% as on June 30, 2020.

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IDBI Bank net profit surges 318 per cent to ₹603 crore in Q1FY22

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IDBI Bank’s first-quarter standalone net profit soared 318 per cent year-on-year (y-o-y) to ₹603 crore on the back of healthy growth in net interest income and other income.

The bank had reported a net profit of ₹144 crore in the year ago quarter.

In the first quarter ended June 30, 2021, net interest income (NII) was up 41 per cent y-o-y to ₹2,506 crore (₹1,772 crore in the year ago quarter).

Other income, comprising income from activities such as commission, fees, earnings from foreign exchange and derivative transactions, profit and loss from the sale of investment and recoveries from written-off accounts, jumped 63 per cent y-o-y to ₹1,639 crore (₹1,005 crore).

IDBI Bank to explore avenues to grow corporate credit: Rakesh Sharma

Net interest margin rose to 4.06 per cent from 2.81 per cent in the year ago quarter.

Fresh slippages were lower at ₹1,332 crore (₹2,382 crore in the fourth quarter/Q4 of FY21). The increase in existing non-performing assets (NPAs) was at ₹245 crore (₹250 crore).

Gross NPAs edged up to 22.71 per cent of gross advances as at June-end 2021 against 22.37 per cent as at March-end 2021.

Net NPA position, however, improved to 1.67 per cent of net advances as at June-end 2021, against 1.97 per cent as at March-end, 2021.

Higher provisions towards NPAs

The bank made higher provisions towards NPAs (₹199 crore against a write-back of ₹1,120 crore in Q4FY21) and restructured assets (₹178 crore against ₹9 crore provision). However, provision towards standard assets declined to ₹353 crore (₹708 crore in Q4FY21).

During the reporting quarter, IDBI Bank made an additional provision of ₹447 crore over and above the income recognition and asset classification norms in respect of certain borrower accounts in view of the inherent risk and uncertainty of recovery in these identified accounts.

IDBI Bank has transformed into a retail bank: Samuel Joseph, Dy MD

Deposits nudged up about 1.37 per cent y-o-y to ₹2,22,381 crore. Advances declined about 2.29 per cent y-o-y to ₹1,22,994 crore.

The bank said it has made provision of ₹902 crore during the quarter ended June 30, 2021, towards the estimated shortfall in recoveries by the Stressed Assets Stabilisation Fund Trust.

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IDBI Bank to explore avenues to grow corporate credit: Rakesh Sharma

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IDBI Bank may explore avenues to grow its corporate credit book, especially in the mid-corporate segment, in a risk-calibrated and cautious manner, following the exit from the Reserve Bank of India’s (RBI) Prompt Corrective Action (PCA) framework, according to MD & CEO Rakesh Sharma.

The bank’s loan book composition of retail to corporate advances was at 62:38 as at end-March 2021, against 56:44 as at end-March 2020.

When IDBI Bank was brought under PCA in May 2017, its loan book composition of retail to corporate advances was at 43:57.

“The exit from the RBI’s PCA framework (with effect from March 10, 2021) has unlocked huge potential for your bank as it can now undertake a wide-range of banking activities and tap the emerging opportunities to boost its business performance. Your bank will continue to remain committed towards its strategic positioning as a retail-oriented bank with focus on growing the share of the loan book of retail and small & medium-sized enterprises,” Sharma said in a message to the shareholders.

When RBI initiates PCA for a bank, it imposes restrictions on the expansion wholesale portfolio, branch expansion, dividend distribution, among others.

PCA is invoked by RBI when a bank breaches any of the four risk thresholds relating to capital, asset quality, profitability and leverage.

IDBI Bank was able to reduce its Risk Weighted Assets (RWA) from Rs 1.59 lakh crore as at end-March 2020 to Rs 1.57 lakh crore as at end-March 2021. According to Sharma, this was a consequence of shifting towards a more retail-oriented portfolio mix, coupled with certain strategic capital conservation measures.

The IDBI Bank Chief said, “Since the muted operating environment clouds the outlook for the lending activity, your bank will focus on maximising fee income. At the same time, to boost the bottom-line, your Bank will work towards minimising its operating expenses and increasing productivity.”

MR Kumar, Chairman, IDBI Bank, in his message to the shareholders, observed that it is inevitable that the year ahead will be peppered with challenges stemming from wavering confidence among businesses as well as consumers as also sputtering momentum of economic activities.

“A health emergency of this magnitude has demanded extraordinary responses and outcomes from all the affected population, businesses as well as policymakers. Under these circumstances, the Bank remains committed to being with its customers and ensuring seamless delivery of financial services and will participate in the relief measures to mitigate the impact of the crisis,” Kumar said.

He underscored that IDBI Bank is cognisant of the elevated risks in the operating environment and will take steps to remain strong and resilient and be well-positioned to absorb potential losses that could arise.

Meanwhile, referring to the Government’s directive of rationalisation of overseas operations, IDBI Bank said it is undertaking necessary steps.

IDBI Bank has one overseas branch at Dubai International Financial Centre (DIFC). It has completed 11 years of operations.

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IDBI Bank sale: Deadline for transaction, legal advisors’ bids extended till July 22

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The Government has extended the deadline for transaction and legal advisors to bid for managing the IDBI Bank strategic sale by nine days till July 22.

The Department of Investment and Public Asset Management (DIPAM) had on June 22 invited bids from merchant bankers and law firms for managing and giving legal advice for the sale process. The last date to put in bids was July 13.

“The competent authority has decided to extend the bid submission date of the tender by nine days. The last date of bid submission will now be July 22, 2021,” the DIPAM said in a notice.

DIPAM, which manages government’s equity, had also clarified to the merchant bankers that LIC’s holding in IDBI Bank would be sold along with government’s stake, but the exact quantum of stake dilution would be decided later.

The Central Government and LIC together own more than 94 per cent equity of IDBI Bank.

LIC, currently having management control, has a 49.24 per cent stake, while the government holds 45.48 per cent in the bank. Non-promoter shareholding stands at 5.29 per cent.

The cabinet in May had approved the strategic sale of the entire stake of government and Life Insurance Corporation (LIC) in IDBI Bank.

In response to queries received from potential transaction advisors in IDBI Bank, DIPAM has clarified that since LIC’s stake would be sold along with that of the government’s, a single transaction advisor would manage the entire share sale process.

“The mandate received from CCEA is to offload up to 100 per cent stake of GoI and LIC along with transfer of management control. However, the exact quantum is yet to be worked out. It will be determined, as we go through the transaction and ascertain investors’ interest and market appetite.

“It is clarified that LIC’s stake will be sold along with GoI’s shareholding in this transaction. So there is only one transaction advisor,” it said.

The quantum of stake dilution would be declared before RFP (Request for Proposal) stage of the transaction, it added.

Finance Minister Nirmala Sitharaman in her Budget for 2021-22 had said the process of privatisation of IDBI Bank would be completed in the current fiscal. The government aims to mop up Rs 1.75 lakh crore in the current fiscal from minority stake sale and privatisation.

Of the Rs 1.75 lakh crore, Rs 1 lakh crore is to come from selling government stake in public sector banks and financial institutions. Rs 75,000 crore would come as CPSE disinvestment receipts.

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Govt extends deadline for transaction, legal advisors to bid for managing IDBI Bank sale till Jul 22, BFSI News, ET BFSI

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NEW DELHI: The government has extended the deadline for transaction and legal advisors to bid for managing the IDBI Bank strategic sale by 9 days till July 22.

The Department of Investment and Public Asset Management (DIPAM) had on June 22 invited bids from merchant bankers and law firms for managing and giving legal advice for the sale process. The last date to put in bids was July 13.

“… The competent authority has decided to extend the bid submission date of the… tender by nine days. The last date of bid submission will now be July 22, 2021,” the DIPAM said in a notice.

DIPAM, which manages government’s equity, had also clarified to the merchant bankers that LIC’s holding in IDBI Bank would be sold along with government’s stake, but the exact quantum of stake dilution would be decided later.

The central government and LIC together own more than 94 per cent equity of IDBI Bank.

LIC, currently having management control, has a 49.24 per cent stake, while the government holds 45.48 per cent in the bank. Non-promoter shareholding stands at 5.29 per cent.

The cabinet in May had approved the strategic sale of the entire stake of government and Life Insurance Corporation (LIC) in IDBI Bank.

In response to queries received from potential transaction advisors in IDBI Bank, DIPAM has clarified that since LIC’s stake would be sold along with that of the government’s, a single transaction advisor would manage the entire share sale process.

“The mandate received from CCEA is to offload up to 100 per cent stake of GoI and LIC along with transfer of management control. However, the exact quantum is yet to be worked out. It will be determined, as we go through the transaction and ascertain investors’ interest and market appetite.

“It is clarified that LIC’s stake will be sold along with GoI’s shareholding in this transaction. So there is only one transaction advisor,” it said.

The quantum of stake dilution would be declared before RFP (Request for Proposal) stage of the transaction, it added.

Finance Minister Nirmala Sitharaman in her Budget for 2021-22 had said the process of privatisation of IDBI Bank would be completed in the current fiscal. The government aims to mop up Rs 1.75 lakh crore in the current fiscal from minority stake sale and privatisation.

Of the Rs 1.75 lakh crore, Rs 1 lakh crore is to come from selling government stake in public sector banks and financial institutions. Rs 75,000 crore would come as CPSE disinvestment receipts.



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Cabinet secy-led panel holds crucial meeting on bank privatisation, BFSI News, ET BFSI

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New Delhi, Jun 27 () Inching a step closer to privatisation of two public sector banks, a high-level panel headed by the cabinet secretary recently held a meeting to thrash out various regulatory and administrative issues so that the proposal could be placed with the group of ministers on disinvestment or Alternative Mechanism (AM) for approval. Pursuant to the announcement made by Finance Minister Nirmala Sitharaman in her 2021 budget speech, the NITI Aayog has suggested a couple of bank names for privatisation to the Core Group of Secretaries on Disinvestment headed by Cabinet Secretary in April, sources said.

The meeting of the high-level panel deliberated on the recommendation of the NITI Aayog on Thursday June 24, sources said, adding the panel would after tying up all loose ends will send the names of the shortlisted PSU banks to AM for consideration.

Headed by the cabinet secretary, the members of the panel include secretaries in the departments of Economic Affairs, Revenue, Expenditure, Corporate Affairs and Legal Affairs, as well as the secretary of administrative department. The panel also has the Department of Public Enterprises, Department of Investment and Public Asset Management (DIPAM) secretary as its member.

According to sources, the panel also examined issues pertaining to protection of interests of workers of banks which are likely to be privatised.

Following a clearance from AM, it will go to the Union Cabinet headed by the Prime Minister for the final nod. Changes on the regulatory side to facilitate privatisation would start after the cabinet approval.

Central Bank of India and Indian Overseas Bank are reported to be probable candidates for privatisation.

The government has budgeted Rs 1.75 lakh crore from stake sale in public sector companies and financial institutions, including two PSU banks and one insurance company, during the current financial year. The amount is lower than the record budgeted Rs 2.10 lakh crore to be raised from CPSE disinvestment in the last fiscal.

In her Budget Speech on February 1, Sitharaman had announced that the government proposes to take up the privatisation of two public sector banks (PSBs) and one general insurance company in the year 2021-22.

“Other than IDBI Bank, we propose to take up the privatisation of two public sector banks and one general insurance company in the year 2021-22,” she had said.

The government last year consolidated 10 public sector banks into four and as a result, the total number of PSBs came down to 12 from 27 in March 2017. The government has merged 14 public sector banks in the last four years.

Last year in April, the government effected the biggest ever consolidation exercise in the public sector banking space when six PSU lenders were merged into four in a bid to make them globally competitive. DP CS ANZ MKJ



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Govt kicks of IDBI Bank stake sale, but doesn’t disclose quantum, BFSI News, ET BFSI

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The government has invited bids from transaction advisors and legal firms for assisting in the strategic sale of IDBI Bank.

The Cabinet had in May given in-principle approval for IDBI Bank’s strategic disinvestment along with transfer of management control.

The central government and LIC together own more than 94 per cent equity of IDBI Bank. LIC, currently having management control, has 49.24 per cent stake, while the government holds 45.48 per cent. Non-promoter shareholding stands at 5.29 per cent.

The last date for submission of bids by both transaction advisor and legal advisors is July 13, the Department of Investment and Public Asset Management (DIPAM) said.

Transaction advisor

The transaction advisor would be required to advise and assist the government on modalities of disinvestment and the timing; recommend the need for other intermediaries required for the process of sale/disinvestment and also help in identification and selection of the same with proper Terms of Reference.

The transaction advisor will also assist in the preparation of all documents like Preliminary Information Memorandum (PIM), organise roadshows to generate interest among the prospective buyers and suggest measures to fetch the optimum value.

The advisor would also be supporting IDBI Bank in setting up an e-data room and assisting in the smooth conduct of the due diligence process.

The extent of shareholding to be divested by the central government and LIC shall be decided at the time of structuring of transaction in consultation with the RBI, the government had earlier said.

Insurance giant LIC had acquired a controlling stake in IDBI Bank in January 2019.

Finance Minister Nirmala Sitharaman in her Budget for 2021-22 had said the process of privatisation of IDBI Bank would be completed in the current fiscal.

The government aims to mop up Rs 1.75 lakh crore in the current fiscal from minority stake sale and privatisation.

Of the Rs 1.75 lakh crore, Rs 1 lakh crore is to come from selling government stake in public sector banks and financial institutions, and Rs 75,000 crore through CPSE disinvestment receipts.

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 was looking at Rs 4,000 crore of recoveries in this 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 an 8-10% rise in corporate loans.



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DIPAM seeks bids for transaction advisor for IDBI Bank strategic disinvestment, last date July 13, BFSI News, ET BFSI

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The department of investment and public asset management (DIPAM) Tuesday issued a request for proposal for appointing transaction advisor for strategic disinvestment and transfer of management control in IDBI Bank Limited.

Among several criteria listed for eligibility, bidders should have completed at least one transaction of strategic disinvestment, strategic sale or merger and acquisition of Rs 5000 crore or more in size, between April 2016 and March, 2021. The last date for submissions is July 13.

The professional financial consulting firm, investment banker, merchant banker, financial institution or bank bidding for the contract, should have at least five years’ experience in providing advisory service in such transactions.

“The Transaction Advisor (TA) will be required to undertake tasks related to all aspects of the proposed strategic disinvestment culminating into successful completion of the transaction and would, inter alia include but not limited to advising and assisting government of India on modalities of disinvestment and the timing,” the department said as it set out terms of reference for the advisor in the RFP.

The advisor would recommend the need for other intermediaries required for the process of sale or disinvestment, help in identification and selection of the same with proper terms of reference, prepare documents such as the Preliminary Information Memorandum (PIM), Confidential Information Memorandum (CIM), Request for Proposal (RFP), Confidentiality Agreement et al.

It will also structure the transaction, organize roadshows, suggest measures to fetch optimum value, position of the strategic sale, invite and evaluate bids, assist and professionally guide during the negotiations with prospective buyers, draw up the sale or other agreements and advise on post-sale matters on a continuous basis.

DIPAM has barred a person or company owning more than 50% equity interest in the merchant banker or controls the merchant bankers, from participating in the competitive process for acquisition of IDBI Bank.

“For clarity, parent entity cannot participate in transaction process in case the selected bidder is subsidiary of an existing retail bank.

In case the interested Transaction Advisor is a subsidiary of an existing retail bank, they need to provide documentation explaining firewall or Chinese-wall structure to maintain confidentiality and conflict of interest.

DIPAM has also barred public sector banks cannot participate as bidders for acquisition of IDBI Bank in the transaction process. Subsidiaries of IDBI Bank – IDBI Capital Markets – cannot participate as bidders for transaction advisors.

The Cabinet Committee on Economic Affairs had given an in-principle approval for the strategic divestment of IDBI Bank in May this year. The extent of shareholding to be divested by the Indian government and Life Insurance Corporation of India will be decided at the time of structuring of transaction in consultation with Reserve Bank of India, it had said.

IDBI Bank is classified as a private sector bank by RBI with government shareholding at 45.48%, LIC of India shareholding at 49.24% and non-promoter shareholding at 5.29%.



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