Tag: idbi bank

Divestment hopefuls Bank of Maha, BoI, IOB shoot up on stock market charts, BFSI News, ET BFSI

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Public sector banks Bank of Maharashtra, Bank of India, Indian Overseas Bank and the Central Bank of India, which are reportedly on the privatisation shortlist have risen manifold during the year.

The rally in PSU banks has strengthened in the last few days despite the yo-yoing markets due to the coronavirus pandemic wave.

Bank of Maharashtra shares have nearly doubled from Rs 13.55 at the start of the year to Rs 25.40 per share. It was up 2.21% over the previous close on Wednesday.

From 10.80 at the start of the year, Indian Overseas Bank’s shares have risen over 52% to 16.45. The shares were up 3.13% over the previous close on Wednesday.

From Rs 50.35 a share in January start, the Bank of India share price has climbed to 72.70 on Wednesday. It was up 4.76% over the previous close.

From 14.10 in January, the share price of Central Bank of India has jumped to Rs 18.45 on Wednesday. It was up 7.89% over the previous close.

The top PSU banks including SBI, Bank of Baroda, Canara Bank and PNB are also outperforming over divestment hopes around PSU banks.

More upside seen

Traders see another 10-15% jump in PSB shares if the Nifty holds 14500 levels.

SBI is the top investment pick in case the Nifty holds 14,400, with others offering a good trading opportunity for greater upside on talks around divestment.

PNB, Canara Bank, Bank of Baroda and SBI, which hold 74.63 per cent weight in the Nifty PSU Bank, have rallied between 4 per cent and 17.5 per cent in April 20-May 11, driving the index up by 15.05 per cent to 2,239.7 over the same period. This beats the Bank Nifty’s 6 per cent rally through 32,953 over the comparative period.

On May 12, when the Nifty and Bank Nifty corrected by more than 1 per cent, the Nifty PSU Bank closed up 3.2 per cent, underscoring the buying in these counters.

Futures prices of these stocks along with aggregate open interest change signal the market interest in these counters.

Canara Bank active futures contract has risen 17.5 per cent through 151 between April 20 and May 11. Over this period, the aggregate open interest, which measures traders’ outstanding buy-sell positions, rose 11.25 per cent, implying bullish sentiment on the counter.

Bank of Baroda’s 17 per cent gain in futures was accompanied by an 11.3 per cent decline in aggregate OI, signalling that bears were covering their sell positions. Likewise, SBI active futures contract, which has risen 11 per cent in the relevant period, was accompanied by an 8 per cent decline in aggregate OI, implying short covering. PNB futures, which rose 4 per cent, saw aggregate OI jump 40 per cent, suggesting bullish build-up.

The status

Indian Overseas Bank and Central Bank are under the Reserve Bank of India‘s stringent prompt corrective action framework.

These banks have reported net non-performing assets (NPAs) below levels that trigger PCA. However, on the proforma net NPA front, Central Bank falls short as its NNPA is 6.58% against the 6% required to be out of PCA.

The Reserve Bank of India is likely to delay regularising struggling state-run lenders that are under the prompt corrective action (PCA) framework as it has reservations over their capital adequacy levels.

Two public sector banks and one general insurance company are expected to be disinvested this year in addition to the divestment of IDBI Bank, Finance Minister Nirmala Sitharaman had announced during Budget presentation in February.



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IOB, Central Bank privatisation bid runs into RBI hurdle, BFSI News, ET BFSI

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The Reserve Bank of India (RBI) is likely to delay regularising struggling state-run lenders that are under the prompt corrective action (PCA) framework as it has reservations over their capital adequacy levels.

This may derail the privatisation prospects of Indian Overseas Bank and Central Bank, which are reported to be among the four banks shortlisted by the government for privatisation.

Indian Overseas Bank (IOB), UCO Bank and Central Bank of India are currently under the stringent PCA of RBI.

The RBI objection

In FY21, the government infused Rs 20,000 crore in ve banks through the instruments. Central Bank of India was the biggest beneficiary with Rs 4,800 crore, followed by Indian Overseas (Rs 4,100 crore), UCO Bank (Rs 2,600 crore).

However, the RBI has raised questions over the government’s bank capital infusion programme through non-interest-bearing bonds, according to a report.

The RBI reasons that capital infusion through bonds cannot be taken at face value and, therefore, these banks may still be short of regulatory capital, they said. In such a situation, they will continue under the PCA framework. Under the PCA regime, business restraints are imposed on struggling banks until they regain health.

The government went ahead despite RBI’s initial reservations and now the regulator has expressed serious concerns. The entire fund infusion through such bonds will then not count toward regulatory capital.

RBI is not inclined to pull these lenders out of the PCA framework based on such capital infusion and may further direct lenders to recalculate their capital adequacy ratio based on the actual value of the bonds.

The PCA status

All three banks under PCA Indian Overseas Bank, UCO Bank and Central Bank have reported net non-performing assets (NPAs) below levels that trigger PCA. However, on the proforma net NPA front, Central Bank falls short as its NNPA is 6.58% against the 6% required to be out of PCA.

Even after PCA exit, these banks may still be under RBI watch. In the case of IDBI Bank, which has committed to comply with the norms of minimum regulatory capital, net NPA and leverage ratio on an ongoing basis, RBI has said the lender would be under continuous monitoring. “It has been decided that IDBI Bank be taken out of PCA framework, subject to certain conditions and continuous monitoring,” RBI had said.

Privatisation bid

Four banks on the privatisation shortlist included Bank of Maharashtra, Bank of India, Indian Overseas Bank and the Central Bank of India.

Two public sector banks and one general insurance company are expected to be disinvested this year in addition to the divestment of IDBI Bank, Finance Minister Nirmala Sitharaman had announced during Budget presentation last month.

Bringing the banks out of PCA could boost their valuations in the event of privatisation.



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IDBI Bank’s officers, employees’ unions urge Government to drop proposal on stake sale

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The United Forum of IDBI Officers and Employees said its members may resort to industrial action if the Government does not drop its proposed move to sell IDBI Bank to a strategic buyer.

“We fervently urge upon the Government of India to drop its contemplated move to sell IDBI Bank to a strategic buyer, failing which the Officers and Employees will be left with no other option but to take recourse to organizational forms of action which on our part are anxious to avoid at this juncture,” the Forum’s Joint Convenors Ratnakar Wankhade and Vithal Koteswara Rao A.V., said in a letter to the Finance Minister.

The Government and the Life Insurance Corporation of India (LIC) together own 94.72 per cent of equity of IDBI Bank (Government: 45.48 per cent and LIC: 49.24 per cent). LIC is currently the promoter of IDBI Bank with management control and Government is the co-promoter.

The Forum demanded that the Government put in place stringent measures for recovering the Non-Performing Assets (NPAs) and fix accountability on all the concerned for the burgeoning NPAs and mammoth “write offs”.

The Joint Convenors observed that the request made by Unions and Associations repeatedly to initiate criminal proceedings against willful defaulters of Bank Loans has not been implemented by the Government so far.

“In case of sale of IDBI Bank to a strategic buyer. The private sector entities who will become the owners of the Bank will no longer be interested to cater to the needs of common man and general public with zero balance Savings Bank accounts,” the Forum said.

Various products/schemes of Government of India meant for common man and general public cannot be offered through a Bank owned by private entities, it added.

“Private Banks will be profit-oriented. We may be forced to collect minimum balance charges and other penalties from common man and general public to get more profits,” the Joint Convenors said.

They emphasised that India needs more Government Banks to improve financial inclusion parameters/aspects.

“Reduction in the number of Government Banks leads to less competition, which is nothing but monopoly. This is totally against the interest of the common man and general public,” the Forum said.

The Forum underscored that given that LIC is the promoter and Government is the co-promoter of IDBI Bank, common man and general public have continued their faith in the Bank because of which its deposits stood at Rs.2,30,898 crores as on March-end 2021.

“In case of sale of IDBI Bank to a strategic buyer, the hard-earned money of common man and general public will be at great risk,” the Joint Convenors said.

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Bank unions term Govt’s move to divest stake in IDBI Bank as retrograde

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Bank unions said the Cabinet approval for strategic disinvestment of the Government’s stake in IDBI Bank and transfer of management control to a strategic buyer is a retrograde step.

“The decision to disinvest in a depressing scenario would lead to underselling and passing the benefits to the private investors. It may also lead to whitewashing the bad loans from the balance sheet,” said S Nagarajan, General Secretary, All India Bank Officers’ Association (AIBOA), in a letter to the President of India, Prime Minister, RBI Governor, and Chiefs of IDBI Bank and LIC.

Staff rationalisation fears

Nagarajan feared that the profit greed of investors will lead to closure of branches/offices, restrict banking activities, lead to staff rationalisation and adverse staff service conditions, which will be counter-productive to the entire workforce.

“When the nation is reeling under health emergency, such an announcement emerging from the corridors of power is really shocking and disturbing,” he said. Nagarajan emphasised that IDBI Bank recently turned the corner after lots of effort put-in by the workforce coupled with the management’s approach to hive-off certain ancillary activities.

“The structural change brought-in by the Government through conversion of IDBI (a development financial institution/DFI) into IDBI Bank (a universal bank) in 2004 was certainly a mistaken step. …the Government’s decision to sell its stake in IDBI Bank is certainly a retrograde step… Side by side, the Government promoting an Infra Bank with huge capital is certainly intriguing,” Nagarajan said.

Appeal to the President

The Association appealed to the President, who is the Custodian of public sector undertakings and public wealth, to counsel the authorities to halt the move to disinvest the Government’s and LIC’s stake in the bank.

In addition, AIBOA sought an immediate intervention to initiate steps to recover the bad loans (at ₹36,212 crore as at March-end 2021) in a fast-track manner lest corporate defaulters acquire this great time-tested institution.

CH Venkatachalam, General Secretary, All India Bank Employees’ Association, said: “IDBI played a leading role in financing industrial development in our country. Because some private corporate houses have cheated the Bank by not repaying the loans, IDBI Bank came into problem.”

IDBI Bank’s shares on Thursday ended 6.72 per cent higher at ₹40.50 apiece. During the day, the bank’s shares rose almost 15 per cent to ₹43.50.

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AIBEA opposes govt decision to privatise IDBI Bank, BFSI News, ET BFSI

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All India Bank Employees’ Association (AIBEA) has opposed the government’s move to privatise IDBI Bank, terming the decision as a “retrograde” move. The association said the government should control a minimum of 51 per cent share capital of the bank.

The bank came into trouble as some private corporate houses cheated IDBI Bank by not repaying the loans taken, while the need of the hour is to take action against the defaulters and recover the money, the bank union said in a statement.

The Cabinet on Wednesday gave in-principle approval for strategic disinvestment along with transfer of management control in IDBI Bank in line with the Budget announcement earlier this year.

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

“The need is to take action on the defaulters and recover the money. Unfortunately, now the decision has been taken to sell the bank to a private company. IDBI Bank is a national asset and should not be sold away in this fashion. It is a retrograde move,” AIBEA said.

If sold to a private company, the existing reservation in jobs for SC/ST category will be withdrawn, it said, adding this is social injustice to the unemployed youth of this country.

The only major problem of the bank is its huge bad loans of Rs 36,000 crore as of March 31, 2021 (22 per cent). Out of the operating profit of Rs 1,900 crore for the year ended March 2021, Rs 1,500 crore have been set off for provision for bad loans, AIBEA Secretary General C H Venkatachalam said.

“Now to camouflage these ills of the bank, the bank is being sold away. We express our strong protest against this decision and urge upon the government not to proceed with the sale of IDBI Bank,” he said.

AIBEA said bank’s deposits of Rs 2.3 lakh crore is people’s money and it should be used for their welfare and national development, not for the private corporate loot.

IDBI was started as a Development Financial Institution (DFI) in the 1960s. It was later converted as IDBI Bank much against the statute approved by Parliament earlier, it added.

It said the bank played a leading role in financing industrial development in the country.



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IDBI Bank: Divestment, transfer of management control approved

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The Cabinet Committee on Economic Affairs (CCEA) on Wednesday gave its in-principle approval for strategic disinvestment along with the transfer of the management control in the IDBI Bank Ltd.

“The extent of respective shareholding to be divested by the Central government and the LIC would be decided at the time of structuring of transaction in consultation with the RBI,” an official release said.

‘Perfect timing’

The Central government and Life Insurance Corporation (LIC) together own more than 94 per cent of equity of the IDBI bank. While the Central government owns 45.48 per cent stake, the shareholding of LIC in the IDBI Bank is 49.24 per cent. LIC is currently the promoter of the IDBI bank with management control, while the Central government is the co-promoter.

Capital market observers noted that the timing of the CCEA decision was quite perfect with the IDBI bank now coming into black after a gap of five years. For the financial year ended March 31, 2021, IDBI Bank has reported a full year standalone net profit of ₹1,359 crore against net loss of ₹12,887 crore in the previous year. The bank had also come out of the RBI’s Prompt Corrective Action (PCA) framework on March 10. “This could boost the valuation of the lender when the government goes in for the strategic disinvestment,” they said.

Speaking to BusinessLine soon after the announcement of the CCEA decision, Rakesh Sharma, Managing Director & CEO, IDBI Bank said, “The bank has seen a turnaround and balance sheet has improved. It is for the owners – the government and the LIC – to decide on the quantum of stake sale, timing and price etc. Now that bank has turned around, it may help them in attracting investors at right valuation.”

It is still not clear whether the management control and majority equity holding will pass on to a foreign bank or any domestic acquirer. One thing is for sure is that the LIC would tag along with the Central government, which is looking to exit, when the transaction is put through – so that the valuation is maximised for both the selling shareholders.

“It is expected that the strategic buyer will infuse funds, new technology and best management practices for optimal development of business potential and growth of the IDBI bank,” the release added.

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IDBI Bank: CCEA approves strategic disinvestment and transfer of management control

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The Cabinet Committee on Economic Affairs (CCEA) on Wednesday gave its in-principle approval for strategic disinvestment along with transfer of management control in IDBI Bank.

 

The extent of respective shareholding to be divested by Central government and LIC would be decided at the time of structuring of the transaction in consultation with the RBI, an official release said.

IDBI Bank’s ownership

The Central government and LIC together own more than 94 per cent of equity in IDBI Bank. While the government owns 45.48 per cent stake, the shareholding of LIC in IDBI Bank stands at 49.24 per cent.

LIC is currently the promoter of IDBI bank with management control while the Central government is the co-promoter.

LIC’s Board has passed a resolution to the effect that the insurer may reduce shareholding in IDBI Bank through divesting its stake along with strategic stake sale as envisaged by the government with an intent to relinquish management control and by taking into consideration price, market outlook, statutory stipulations and interest of policyholders.

The decision of LIC‘s Board is also consistent with the regulatory mandate to reduce its stake in the bank. It is expected that the strategic buyer will infuse funds, new technology and best management practices for optimal development of business potential and growth of IDBI Bank and shall generate more business without any dependence on LIC and government assistance/funds, the release added.

Resources through strategic disinvestment of government equity from the transaction would be used to finance developmental programmes of the government benefiting the citizens, the release added.

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IDBI Bank back in black in FY21 after 5 years, posts profit of Rs 1,359 cr, BFSI News, ET BFSI

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LIC-controlled IDBI Bank turned profitable in the fiscal ended in March 2021 after five years, posting a net profit of Rs 1,359 crore for the year. In 2019-20, the lender had posted a net loss of Rs 12,887 crore.

IDBI Bank is back in black after five years, said the lender.

In the last quarter of the fiscal year 2020-21, the bank reported a nearly four-fold jump in its net profit to Rs 512 crore, IDBI Bank said in a release. The bank had posted a profit of Rs 135 crore in the year-ago quarter.

The bank, which came out of the RBI‘s prompt corrective action (PCA) framework earlier in March this year, said its turnaround strategies led to the transformation.

Total income during Q4FY21 rose to Rs 6,969.59 crore from Rs 6,924.94 crore in the same period of 2019-20.

The full year income, however, was down at Rs 24,557 crore as against Rs 25,295 crore.

Gross NPA (non-performing asset) ratio improved to 22.37 per cent as on March 31, 2021 as against 27.53 per cent in the year-ago period. Net NPA improved to 1.97 per cent from 4.19 per cent, IDBI Bank said.

The bank said its recovery from technically written off accounts improved to Rs 269 crore in Q4FY21 as against Rs 105 crore in the third quarter FY21.

Provisions for bad loans and contingencies were raised to Rs 2,457 crore during the reported quarter as against Rs 1,584 crore.

The bank said it has made Covid-related provisions of Rs 363 crore at the end of March 2021.

IDBI Bank shares traded at Rs 36.25 on BSE, up 2.69 per cent from the previous close.



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Bank unions threaten with aggressive protest against privatisation move, BFSI News, ET BFSI

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Bank unions across India have not yet given up and in order to support their stance against the proposed privatisation of some state-run banks, they have made threats of holding more strikes against the Union government. This comes after the general council meeting of the All India Bank Employees’ Association (AIBEA) on Sunday.

“The general council meeting has called upon all our unions and members all over the country to continue the struggle against bank privatisation, get ready for prolonged strikes and intensify our campaign to defend public sector banking and defeat attempts of privatization,” the union said in a statement.

FM Niramala Sitharaman announced in the Union Budget speech on February 1 that the government will conduct privatisation of two more public sector banks besides IDBI Bank, in the financial year 2022. Following this major development, on March 15 and 16, about 10 million bank employees participating from nearly 9 bank unions conducted a two-day bank strike

Bank unions have also begun engaging with customers and the public at large, on what they believe are the ill-effects of privatization.

In a statement AIBEA added, “Public sector banks provide permanent jobs for the educated youth. But we know the plight of the employees working in the new private banks where job security is totally absent. Fair wages are denied. Trade union rights are non-existent. Thus, privatisation of banks will enslave the young employees into these adverse conditions.”

The 2-day national bank strike led to Heavy losses of about Rs 16,500 crore due to clearance of cheques and payment instruments only on the first day of the strike. Payment instruments such as cheques, demand drafts and pay orders are processed by three large centres.

While Chennai handles 5.8 million instruments worth ₹5,150 crore every day, Mumbai handles 8.6 million instruments worth ₹6,500 crore and Delhi processes 5.7 million instruments worth ₹4,850 crore.

Also Read: Privatisation…Long (not) live Public Sector Banks



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‘Offloading of LIC stake in IDBI Bank will hit policyholders’

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The All-India IDBI Officers’ Association has cautioned that any move by the Life Insurance Corporation (LIC) of India to offload the stake held in IDBI Bank could hurt the interests of policyholders of LIC. The public sector life insurer was permitted to acquire up to 51 per cent equity in IDBI Bank, breaching the cap of 15 per cent originally stipulated for such transactions.

In a letter to the Chairman, Insurance Regulatory and Development Authority of India (IRDAI), Vithal Koteswara Rao AV, General Secretary of the Association, said that various reports in the media have suggested that LIC has been making repeated efforts to offload the stake it holds in IDBI Bank.

Also read: We will try to grow our business in a very calibrated way: IDBI Bank CEO

Loss may be distributed

Any loss that the LIC incurs in the transaction will, in turn, be distributed among the policyholders while declaring bonuses. The stake it holds in the bank was purchased at an average price per share of about ₹60 in 2019 whereas the current market price of the IDBI Bank share is at ₹40, Rao said.

The LIC of India holds 529,41,02,939 shares of IDBI Bank currently. When seen in absolute terms, the deal, if allowed to go through, will cause a loss that could runs into several thousands of crores, Rao said in the letter. It will only force the policyholders of the LIC to bear the brunt of this humongous loss.

“As most of our members are also policyholders of the LIC, we are obliged to make this request on behalf of our members to arrange to initiate suitable measures to see that none of the policyholders is subjected to any financial loss when the LIC seeks to pare the stake it now holds in IDBI Bank,” the letter said.

Series of worrying events

The Association expressed its worry over a series of events initiated with the acquisition of 51 per cent of stake in IDBI Bank in January 2019, followed by an announcement by the Reserve Bank in March that year that the status of IDBI Bank stands changed from a public sector bank to a private bank.

The next was the unilateral modification of service conditions of IDBI Bank officers by the management linking their performance with prospective termination, which the Association feels has been made with a clear intention of subjecting them to victimisation ‘as per the whims and fancies of the management’.

The Union Finance Minister’s observation that interests of the workforce of any public sector bank being privatised would be protected, attracts interest. But the ground reality prevailing at the bank versus the Finance Minister’s pronouncement are contradictory, the Association says.

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