Tag: idbi bank

IDBI Bank to focus on retail loans in life out of PCA, BFSI News, ET BFSI

Banking & Finance

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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.



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IDBI Bank eyes stake sales in subsidiaries, BFSI News, ET BFSI

Banking & Finance

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MUMBAI: IDBI Bank plans to ramp up growth, regain lost corporate customers and sell stakes in its insurance, capital markets and technology arms following its exit from the banking regulator’s prompt corrective action (PCA) framework for weak lenders.

IDBI Bank MD & CEO Rakesh Sharma told TOI that the bank had used the four-year interregnum to restructure its business, cut exposure to large loans and bulk deposits and create verticals for various lending businesses to speed up turnaround time. As a result, the institution has transformed from a project financier to a retail lender.

“While our retail portfolio grew during the moratorium period, we were not able to cater to the corporates. We are now looking at the mid-corporate segment, particularly the good companies which were our partners earlier and we could not extend loans because of restrictions under the PCA,” said Sharma.

He said that the bank was looking at Rs 4,000 crore of recoveries in the next fiscal year. In addition, it was willing to sell a 25% stake in Ageas Federal Life (formerly IDBI Federal Life) to the foreign partner if they wanted to acquire the stake once the increase in foreign direct investment (FDI) is allowed.

IDBI Fintech is a 100% subsidiary of the bank. The company 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.

The RBI’s PCA places restrictions on weak banks from offering large loans to corporates and offering salary hikes for management and from expanding business. Sharma said that the bank did hire specialists from the market, but now that it was out of PCA it would do more lateral recruitments and continue to hire from campuses.



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Post exit from PCA framework, IDBI Bank to focus on improving efficiency ratios, says MD, BFSI News, ET BFSI

Banking & Finance

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Having emerged from regulatory restrictions recently, IDBI Bank is now looking at growing business in a calibrated way with more focus on profitability and in improving efficiency ratios, its Managing Director and CEO Rakesh Sharma said. On March 10, the Reserve Bank of India (RBI) removed the LIC-controlled bank from its prompt corrective action (PCA) framework, which was imposed in May 2017, after it had breached certain regulatory thresholds, including capital adequacy, asset quality and profitability.

“With restrictions imposed by RBI gone, we will like to go in a calibrated way and grow the business in a more profitable fashion so that my efficiency ratios improve. Our revenue, profitability and other ratios will certainly show improvement,” Sharma told in an interaction.

He said in the fiscal 2021-22, the bank will be targeting to improve net interest margin (NIM) to 3 per cent, return of assets (ROA) at above 0.60-0.70 and cost to income ratio to below 50 per cent.

In the nine months ended December 2020, its NIM stood at 2.79 per cent and cost to income at 54 per cent.

“The depositors will now be seeing the strength of the bank. The bad phase is over and the bank is sufficiently strong,” he said.

Sharma said during the last four years, when the bank was under PCA, the focus was on retail and priority sector lending. Currently, the share of retail loans in the bank’s total advances is 60 per cent and that of corporate loans is 40 per cent.

“Going forward we will not be stopping corporate business. We will start doing corporate business and will continue to do retail business. It will be a retail-focussed bank,” he said.

During FY22, the bank is expecting around 8-10 per cent growth in mid and large corporate loan segments, and 12 per cent growth in retail and priority sector loans, he said.

Besides loan against property (LAP), the bank now wants to develop personal loans and gold loans portfolio, where it has a small exposure at present, Sharma said.

The bank doesn’t see much stress in its loan book going ahead due to the better asset quality.

“Due to Covid, we could see minor stress in accounts. But the type of assets that we have built up in our bank, I don’t foresee any problem,” Sharma said.

Overall slippages in fiscal 2020-21 and the next fiscal will be less than 2 per cent, he added.

In FY22, the bank is targeting a total recovery of Rs 3,500-4,000 crore.

Sharma said the bank is well capitalised and there is no immediate need for raising funds.

As of end-December 2020, the bank’s total capital-to-risk weighted assets ratio (CRAR) stood at 14.77 per cent.



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RBI pulls IDBI Bank out of the PCA framework, bank to resume normal lending, BFSI News, ET BFSI

Banking & Finance

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The Reserve Bank of India (RBI) on Wednesday said IDBI Bank has been taken out of the prompt corrective action (PCA) framework after it found the state-run lender was not in breach of its rules on regulatory capital, bad loans and leverage ratio.

The Life Insurance Corporation of India (LIC)-owned lender has given the regulator a written commitment that it shall comply with the norms of minimum regulatory capital, bad assets and leverage ratio on an ongoing basis. Coming out of the PCA framework would allow the bank to resume it’s normal lending operations including corporate loans.

IDBI Bank was placed under the so-called PCA framework in 2017 over its high bad loans and negative return on assets, at a time when Indian lenders battled record levels of soured assets, prompting the RBI to tighten thresholds.

The RBI said that the performance of IDBI Bank was reviewed by the board for financial supervision (BFS) in its meeting held on February 18. After taking everything into consideration, it was decided that the bank be taken out of the PCA framework.

“It was noted that as per published results for the quarter ending December 31, 2020, the bank is not in breach of the PCA parameters on regulatory capital, Net NPA and Leverage ratio. The bank has apprised the RBI of the structural and systemic improvements that it has put in place which would help the bank in continuing to meet these commitments,” the central bank said.

IDBI Bank posted a net profit of Rs 378 crore in the third quarter (Q3) ended December 2020-21 (Q3FY21), aided by a rise in net interest income. This is the fourth consecutive quarter of profit for the lender. It had booked a net loss of Rs 5,763 crore in Q3 of 2019-20.

IDBI Bank had met three out of four key criteria needed to exit the prompt corrective action framework. IDBI Bank’s gross bad loan ratio, which was among the highest, has also eased in recent quarters, standing at 23.52% as of end-December.

  • Technically classified as a private bank after its takeover by LIC, IDBI Bank continues to struggle with recoveries from stressed corporate NPAs. However, with aggressive positioning, Net NPA ratio has improved to 1.94% against 5.25%.
  • Provision Coverage Ratio, a key financial parameter, improved to 97.08% in the third quarter from 92.41% in the previous fiscal
  • Its leverage ratio has also surpassed the 4% threshold and currently stands at 5.71%.

Its capital to risk-weighted assets ratio (CRAR), including counter cyclical buffer (CCB) stood at 14.77%, against the regulatory minimum of 11.5%. It’s return on assets (RoA) for Q3 stood at 0.51%. Retail loans accounted for 60% of the total loan book, with the rest being corporate loans. IDBI Bank’s total deposits rose 2.85% y-o-y to Rs 2.24 lakh crore at the end of December 2020. The share of current accounts savings accounts (CASA) in total deposits was 48.97% as on December 31, 2020.

However, shares of IDBI Bank have lost more than 50% of their value since RBI brought it under the framework in 2017. They have surged sharply since the federal budget in February on expectations New Delhi intends to sell its stake in the bank to help India’s depleted coffers.



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IDBI exits RBI’s list of lenders facing curbs, BFSI News, ET BFSI

Banking & Finance

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Mumbai: IDBI Bank has finally managed to get out of the Reserve Bank of India’s (RBI’s) watchlist for troubled banks after four years. With this, the bank is no longer subject to the restriction on large loans, dividend payment, expansion of business or salary hikes. The move comes at a time when the government has announced its intent to divest stake in the bank as part of its privatisation programme.

The RBI had first placed IDBI Bank under its prompt corrective action (PCA) framework in May 2017 after it exceeded the limits set by the central bank for bad loans and its capital position weakened. Since then, the government sold its stake to LIC, which invested Rs 21,524 crore in the bank to pick up a 49.2% stake. The government retained45.5%.

LIC’s investment in the bank continues to be in the red even after an over 5% rise in the bank’s share price to over Rs 38 on Wednesday. IDBI Bank has a market valuation of Rs 41,128 crore. This values LIC’s stake at Rs 20,250 crore.

The bank has been held back because of the PCA framework as its expertise lay in its legacy business of project and corporate loans, which it was barred from under the restrictions.

According to the RBI, the performance of IDBI Bank was reviewed by the financial supervision board on February 18, 2021. The board considered the results for the quarter ended December 2020, where the bank had reported a net profit of Rs 378 crore and qualified to exit the RBI’s PCA framework.

IDBI Bank also provided a written commitment to the RBI, stating that it would ensure that its financial ratios are within the prescribed parameters. It also highlighted the structural changes that have been put in place to improve the performance of the bank.

“Taking all the above into consideration, it has been decided that IDBI Bank Limited be taken out of the PCA framework, subject to certain conditions and continuous monitoring,” the RBI said. Last month, finance ministry officials had indicated that they expected three more public sector banks — Indian Overseas Bank, Central Bank and UCO Bank — to exit the RBI’s PCA framework soon.



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IDBI Bank exits PCA, subject to conditions

Personal Finance

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IDBI Bank’s exit from PCA is a crucial step towards carrying out the government’s bank privatisation programme, as it is one of the lenders identified for sale.

The Reserve Bank of India (RBI) on Wednesday said IDBI Bank has been taken out of the prompt corrective action (PCA) framework, subject to specific conditions. The Life Insurance Corporation of India (LIC)-owned lender has given the regulator a written commitment that it shall comply with the norms of minimum regulatory capital, bad assets and leverage ratio on an ongoing basis.

IDBI Bank’s exit from PCA is a crucial step towards carrying out the government’s bank privatisation programme, as it is one of the lenders identified for sale. The bank had been barred from increasing its risk-weighted assets — in other words, making large advances — in May 2017. Its departure from the lending quarantine comes after successive profitable quarters, even as its gross non-performing asset (NPA) ratio stood at an elevated 23.52% at the end of December 2020.

The RBI said that the performance of IDBI Bank was reviewed by the board for financial supervision (BFS) in its meeting held on February 18. “It was noted that as per published results for the quarter ending December 31, 2020, the bank is not in breach of the PCA parameters on regulatory capital, Net NPA and Leverage ratio. The bank has provided a written commitment that it would comply with the norms of minimum regulatory capital, Net NPA and Leverage ratio on an ongoing basis and has apprised the RBI of the structural and systemic improvements that it has put in place which would help the bank in continuing to meet these commitments,” the central bank said. Taking all the above into consideration, it was decided that the bank be taken out of the PCA framework, subject to certain conditions and continuous monitoring.

Technically classified as a private bank after its takeover by LIC, IDBI Bank continues to struggle with recoveries from stressed corporate NPAs. With aggressive provisioning, though, the bank has managed to reduce its net NPA ratio to 1.94% in Q3FY21. Had it classified borrower accounts as NPA after August 31, 2020, in the absence of an interim judicial order, its pro forma gross NPA ratio and pro forma net NPA ratio would have been 24.33% and 2.75%, respectively. The provision coverage ratio (PCR) improved to 97.08% as on December 31, 2020 from 95.96% as on September 30, 2020.

The bank’s management had said in January that it had become compliant with all parameters required to exit the PCA framework. Its capital to risk-weighted assets ratio (CRAR), including countercyclical buffer (CCB) stood at 14.77%, against the regulatory minimum of 11.5%. Its net NPA ratio was at 1.94% against a required 6%, and its return on assets (RoA) for Q3 stood at 0.51%. Its leverage ratio stood at 5.71%, as against a minimum of 4%.
Gross advances fell 7% year-on-year (y-o-y) to Rs 1.6 lakh crore as on December 31, 2020. Retail loans accounted for 60% of the total loan book, with the rest being corporate loans. IDBI Bank’s total deposits rose 2.85% y-o-y to Rs 2.24 lakh crore at the end of December 2020. The share of current accounts savings accounts (CASA) in total deposits was 48.97% as on December 31, 2020.

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IDBI Bank to be taken out of PCA framework

Banking & Finance

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Reserve Bank of India has decided to take IDBI Bank out of the Prompt Corrective Action (PCA) framework, subject to certain conditions and continuous monitoring.

This development comes in the backdrop of the Union Budget announcement that the Government is working towards strategic disinvestment of its stake in IDBI Bank in FY 2022.

RBI had invoked PCA against IDBI Bank in 2017 in view of high non-performing assets and negative return on assets.

Under PCA, usually expansion of a bank’s branch is restricted and lending is narrowed to relatively less risky segments to nurse it back to health.

 

The Board for Financial Supervision (BFS), which reviewed the performance of IDBI Bank in its meeting held on February 18, 2021, noted that in line with the published results for the quarter ending December 31, 2020, the bank is not in breach of PCA parameters on regulatory capital, net NPA (non-performing assets) and leverage ratio.

“The bank has provided a written commitment that it would comply with the norms of minimum regulatory capital, net NPA and leverage ratio on an ongoing basis and has apprised RBI of the structural and systemic improvements it has put in place, which would help it in continuing to meet these commitments,” RBI said in a statement.

Life Insurance Corporation of India (LIC) is the promoter of IDBI Bank holding 49.24 per cent shareholding and Government of India is the co-promoter (without management control) holding 45.48 per cent shareholding.

 

Meanwhile, the bank is planning to set off accumulated losses of about Rs 44,500 crore against the balance standing to the credit of the Securities Premium Account (SPA) after the declaration of its fourth quarter (Q4FY21) financial results.

According to the Draft Scheme for setting off accumulated losses as on April 1, 2021 against SPA, this balance sheet neutral exercise of re-arrangement of liabilities will enable the bank to represent its true financial position. It will also help the bank raise resources via AT (Additional Tier) 1 Bonds in the near future as it will become eligible to make coupon payments.

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PSU bank fundraising plans set for revival as bull-run lifts fortunes, BFSI News, ET BFSI

Banking & Finance

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With the markets on the upswing, public sector banks that struggled to raise funds in December are making hay in the market.

Banks are looking to raise funds to meet regulatory and provisioning requirements and to be ready for the opportunities that a likely boom in the economy may throw up in the coming months.

Bank of Baroda

State-owned Bank of Baroda has raised Rs 4,500 crore equity capital through qualified institutional placement (QIP) on Wednesday.

It allotted 55,07,95,593 equity shares to eligible qualified institutional buyers at an issue price of Rs 81.70 per share against the floor price of Rs 85.98 apiece.

Public sector banks (PSBs) are planning to raise about Rs 10,000 crore through a mix of equity and debt in the remaining two months of the current fiscal ending March to support credit pick up and meet regulatory requirements, the government had said last month.

Union Bank of India

Union Bank plans to raise between Rs 2,000 crore to Rs 3,000 crore through QIP.

The bank has shareholder permission to raise up to Rs 6,800 crore, but was planning to raise only Rs 3,000 crore as the risk appetite for public sector bank shares is still not the best. UBI plans to restrict its target to Rs 3,000 crore and possibly try another issue next fiscal year.

Private sector banks

A clutch of private sector banks also have plans to tap the market.

IDFC First IDFC First Bank’s board will meet on February 18, 2021 “to consider and approve the proposal for raising of funds by way of issue of equity shares/ other equity-linked securities. The bank sees strong strong upcoming growth opportunities.

YES Bank’s shareholders have approved a proposal for raising Rs 10,000 crore capital with the requisite majority.

December raising

Punjab National Bank raised Rs 3800 crore in December 2020 while IDBI Bank raised Rs 1400 crore in twin issues which were priced on the same day in the middle of December. Canara Bank had raised Rs 2000 crore earlier in the month.

PNB had targeted Rs 7,000 crore while IDBI Bank had aimed to raise Rs 2,000 crore. Both issues were short of their targets.

In the last few months, lenders including State Bank of India, Canara Bank and PNB have raised about Rs 50,000 crore from the market.

Bank stocks to shine?

Bank stocks were underperforming last year due to fears of a spike in non-performing assets and their annual returns were as low as 4%. However, they are recovering now.

According to analysts, the banking and finance sector seems to be the most probable candidate poised to outperform the broader markets as the pharma sector has run its course.

What RBI says

RBI Governor Shaktikanta Das has been advising banks to proactively raise capital and not wait for a difficult situation to arise due to the Covid crisis.

Besides, the government has allocated Rs 20,000 crore for capital infusion into PSBs in the current fiscal. Of this, the Finance Ministry has granted Rs 5,500 crore to Punjab & Sind Bank.

During 2019-20, the government made Rs 70,000 crore capital infusion into the PSBs to boost credit for a strong impetus to the economy.



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LIC to sell stake in IDBI Bank to ease process of disinvestment

Banking & Finance

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Life Insurance Corporation of India (LIC) has agreed to shed its shareholding in IDBI Bank, a move which will give a boost to the government to completely exit from the IDBI Bank and also ease the process of its strategic disinvestment.

However, it is for LIC to decide on the quantum of stake it would like to part with to aid this process.

As on December 30, 2020, LIC holds 49.24 per cent of stake in LIC while 45.48 per cent is with the Central Government.

A senior official told BusinessLine that LIC is ready to sell shares. The government intends to complete the process in FY21-22. Keeping that in mind, amendments have been proposed in the Finance Bill 2021. The Finance Bill will be taken up for consideration and passage during second leg of the Budget Session, starting Monday.

LIC was brought in when IDBI Bank was in trouble, but now the government thinks that phase is over. Accordingly, they now want LIC to offload its holding. Initially, LIC was hesitant, as it believed that the government had to ask the insurance major to sell stakes.

Special relaxation

Clauses 152, 153, of the Finance Bill seek to amend the Industrial Development Bank (Transfer of Undertaking and Repeal) Act, 2003. Once amendments are approved, The Industrial Development Bank of India Limited shall be deemed to have obtained a (Banking) license under Section 22 of Banking Regulation Act, which will be a condition precedent to disinvestment of government’s stake in the Bank resulting in receipts to government.

In an interview to BusinessLine, Financial Services Secretary Debashish Panda had said, “as a board-run organisation, LIC has its own principles to decide about investment and sale. Whatever they do, they will do it in the interest of policy holders. So, when they are going to off load their stake, it is in their realm … I think LIC would also sense that while government is also disinvesting, it also has a mandate from the insurance regulator to bring down its holding in IDBI Bank to 15 per cent over a period of time. Now, if the government is disinvesting, this means a sizeable, strategic chunk will be available to a potential investor. It could be an attractive proposition and may fetch a better price.”

LIC taking over IDBI was made possible on account of special relaxation provided by the insurance regulator, The Insurance Regulatory and Development Authority of India (IRDAI). The regulations restrict insurer’s holding at 15 per cent stake in a single firm. Also, an insurer cannot have ownership in any non-insurance company. The Reserve Bank of India does not allow non-banking entities to have more than 10 per cent stake in a bank.

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IDBI Bank doggedly pursuing a second attempt to sell Sholay fame Minerva theatre

Banking & Finance

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IDBI Bank seems to be doggedly pursuing the sale of a plot of land, where the iconic Minerva Theatre (of “Sholay” fame) once stood, in South Mumbai. The Bank has launched a second attempt to sell the land in the current calendar year.

In its latest bid to sell the land, the bank has lowered the reserve price for the freehold plot (15,975 square feet) on Dr Dadasaheb Bhadkamkar Marg (popularly known as Lamington Road) to ₹52 crore from ₹57.87 crore in January 2021.

The Bank said the rectangular plot owned by it is ideal for residential/ boutique commercial use. The blockbuster movie “Sholay” ran for five years on the trot from 1975 at Minerva Theatre.

The plot has been on the block for the last many years, but the Bank did not receive bids that passed muster.

IDBI Bank floated a request for a proposal (RFP) to sell this commercial property on January 4, 2021, with date of submitting offers/bids being January 25, 2021. It extended the last date for submission of offers/bids to February 22, 2021.

The Bank has once again floated an RFP (March 5, 2021) for the aforesaid property. The last date for submission of offers/bids is March 16, 2021. It has specified that bids cannot be submitted by a consortium of bidders.

Banks seem to be facing an uphill task in selling commercial properties in Mumbai, going by the experience of IDBI Bank (in respect of Minerva Theatre) and a consortium of banks led by State Bank of India (in respect of the sale of Kingfisher House to partly recover exposure to the defunct Kingfisher Airlines).

The aforementioned development comes in the backdrop of the slowdown in domestic economic activity, which started in 2018-19, and the downturn in the commercial real estate market in the last three-four years.

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