After being granted a lifeline from the country’s largest insurer, the erstwhile state-run lender, IDBI Bank is now planning to turn to the Reserve Bank of India (RBI) for some forbearance to bring its house in order.
IDBI Bank that slipped under the RBI’s Prompt Corrective Action (PCA) directions two years ago, posted its tenth quarterly loss in a row for the January-March 2019 period. Bogged down by ageing provisions, the bank reported a net loss of Rs 4,918 crore in the fourth quarter.
Its earlier target of exiting PCA framework by September 2019, may get pushed further by one quarter at least. “My target is that when we declare third quarter results, we should stand compliant with all the parameters under PCA,” said Rakesh Sharma, MD & CEO of IDBI Bank.
As per RBI norms, a bank must meet parameters such as asset quality, capital adequacy ratio and profitability to be able to shed the PCA-tag. Until then, the lender is barred from opening new branches, hiring, entering a new line of business and unsecured lending. The bank also has to reduce risky assets and cut non-fund based business.
“We are already compliant on certain parameters and we’ll be moving from threshold 3 to threshold 2 and 1. So, gradual improvement will be there,” Sharma said, adding that the lender will approach RBI for relaxation in lending to bigger and high rated accounts to support its profitability. Sharma hopes to turn the bank profitable in the third quarter.
Once it is out of PCA, IDBI Bank aims to raise Rs 6,500 capital including Rs 2,500-3,000 crore of Tier-2 bonds this financial year. For equity, the bank may opt for preferential allotment of shares or a rights issue.
IDBI Bank wants LIC to maintain the majority shareholding as of now. Sharma said the bank is comfortable with the 12-year timeline set by RBI to bring down the promoter’s stake by 10 percent. He added that the insurance regulator has not indicated any timeline for the same.
In January 2019, Life Insurance Corporation of India (LIC) took over IDBI Bank with 51 percent shareholding by infusing Rs 21,624 crore of capital in phases.
With LIC at the helm and various restrictions in place due to PCA, the bank has shifted its focus to boosting its fee income. IDBI Bank aims to rake up Rs 2,000 crore premiums from the sale of LIC policies alone. In March, it sold more than 25,000 policies and collected Rs 160 crore worth of premiums.
“Fee income is going to be one of the main areas from where the revenue streams are going to crystallise for the bank,” said Jorty Chacko, executive director, retail assets and third-party distribution.
Apart from the sale of life insurance policies of both LIC and its own subsidiary IDBI Federal Life, the bank has tie-ups with non-life insurers Tata AIG and New India Assurance. IDBI Bank is in the process of signing up an agreement with Max Bupa for standalone health insurance.
Chacko said the bank is also offering 10 basis points discount for shifting existing home loans and 15 basis points discount on fresh borrowing to LIC policyholders. “We’re expecting Rs 500 crore revenue this year purely from LIC synergies and Rs 1000 crore from next year onwards,” Chacko said. In FY19, the bank’s total fee-based income was at Rs 2,213 crore.
To avoid unhealthy competition, IDBI Bank has decided to exit its mutual fund and insurance businesses completely this financial year, as per regulatory conditions. It has appointed merchant bankers and invited expression of interest for both. It plans to add Rs 1,500-2,000 crore to its capital base from these stake sales. Other investments that the bank will sell this year include its stake in National Stock Exchange, NSDL and SIDBI.
Published On : 30-05-2019
Source : Money Control
