During the four years that IDBI Bank was under prompt corrective action (PCA), it transformed itself from a predominantly corporate bank to a retail bank. And the Bank, which exited PCA on March 10, 2021, would like to keep it that way, according to Samuel Joseph J, Deputy Managing Director. In an interaction with BusinessLine, he emphasised that it had aggressively accelerated provisioning, over and above the regulatory requirement, in the past to strengthen its balance sheet. So, write back to profits in the next two to three years, whenever the recovery from stressed assets happens, will be about ₹7,500 crore. Excerpts:
Now that your bank is free from the shackles of PCA, how does it plan to grow business?
During the period that we were under PCA, we were consolidating our position. We completely revamped our risk management policies, especially concerning corporate credit. So, everything was ready (for growing business) before we exited PCA. But unfortunately, the exit coincided with lockdown and related economic uncertainty. However, we will be able to expand our book in FY22. We propose to grow our corporate loan book by 8-10 per cent and our retail book by 10-12 per cent.
There is an impression that our Bank is a corporate bank. But if you look at our March 2021 numbers, our corporate to the retail ratio in the overall loan book was 38:62. This is a significant shift from where we were three-four years ago when the ratio was 60:40.
Going forward, we would like to keep the corporate book at about 40-45 per cent and the retail book at about 55-60 per cent.
And even on the liabilities side, we have transformed our liabilities franchise, and today our CASA (current account, savings account) is 50.45 per cent of total deposits. Even within term deposits, our reliance on bulk deposits is less than 15 per cent. Three years back, CASA was at about 37 per cent.
So, we have used the PCA period well to completely transform our business mix and strengthen the balance sheet.
How did you strengthen the balance sheet?
The first thing was recognition of non-performing assets (NPAs). We made aggressive provisioning for the NPAs and took the hit upfront on our Profit & Loss (P&L) account. So, today, our provision coverage ratio is at 96.9 per cent. The huge losses in 2019-20 were all because of aggressive accelerated provisioning. This was not required as per the regulatory norms, which give banks a gliding scale (for provisioning). Going by this, 96.9 per cent provisioning is not required at all. But we made accelerated provisioning to absorb the pain upfront. So, though the Gross Non-Performing Assets (NPA) ratio is slightly elevated at 22.37 per cent, the net NPA ratio is only 1.97 per cent as of March-end 2021.
We have not aggressively written off NPAs in the past because of the uncertainty relating to future profitability. But now that we have made five quarters of profit, we are fairly certain. Of course, we will wait for the Covid uncertainty to clear up, promoter change and all that and then we should be able to bring down GNPA by writing off 100 per cent provided for accounts.
How much provision write-back can you get from recoveries?
Our Gross NPAs are at about ₹36,000 crore. Technically written off (TWO) accounts already in our book aggregate to about ₹43,000 crore. So, both put together is about ₹79,000 crore. And this is about 97 per cent provided for….On average, let us say, we recover about 15 per cent. So, on ₹79,000 crore, we will be able to recover about ₹11,850 crore. Now, let us take a more conservative estimate — say, we recover only about ₹10,000 crore. Our net NPAs are only ₹2,500 crore because of aggressive provisioning. So, provision write-back to profits in the next two to three years, whenever the recovery happens, will be about ₹7,500 crore. The future (profit) potential of this aggressive past provisioning will at least be ₹7,000 crore to ₹7,500 crore going forward in the next two to three years.
Our Capital to Risk-weighted Assets Ratio (CRAR) is 15.59 per cent. So, from now on, we will be able to recoup our capital and increase CRAR much further. So, this is what we have done — on the P&L part, we have absorbed the pain upfront, and we have strengthened our balance sheet to recoup our capital through recovery and write-back to profits in the next two to three years.
Did you zero in on the stressed assets you will transfer to the National Asset Reconstruction Company Ltd?
We have identified the stressed assets for the transfer. The criteria for the transfer is that they should have been 100 per cent provided for, not be categorised as fraud, and it should not be very close to a resolution or recovery. Using these filters, we have identified the assets. We have a list of 11 accounts aggregating about ₹12,000 crore to be transferred to NARCL.
The immediate visual impact of this transfer on our balance sheet will be by way of a reduction in our Gross NPA ratio. Out of this ₹12,000 crore, some of the accounts may even be TWO accounts. The impact of TWO accounts is already reflected in our books. So, if out of ₹12,000 crore, Gross NPAs and TWO accounts amount to ₹6,000 crore each, then the GNPA could come down about 3.50 per cent.