The government will likely float an expression of interest (EoI) for the divestment of IDBI Bank within a month, managing director and CEO Rakesh Sharma said while announcing the fiscal first quarter performance.

The roadshows held earlier were only to understand transactions. “Some of the investors were interested in understanding how the transfer will happen. Once the EoI is issued, the process will start and bids will be called. Within a month or so, this EoI is expected,” Sharma said.

The government has already hired a transaction and legal adviser for the divestment, he added.

The regulator will have to ascertain whether the EoI bidders qualify under its ‘fit and proper’ norms as promoters.

The government is reportedly in talks with a clutch of potential investors, including Canadian billionaire Prem Watsa’s Fairfax Financial Holdings, for acquiring stake in IDBI Bank. Watsa holds a controlling stake in Kerala-based CSB Bank. 

In February 2021, the government had announced its intent to divest stake in IDBI Bank and the process was expected to be completed by March 2022. 

IDBI Bank has already been reclassified as a private sector entity by the Reserve Bank of India, with the government’s shareholding at 45.5% and LIC’s 49.24% as of June. The non-promoter shareholding is at 5.29%.

Though the bank was well capitalised and did not require capital immediately, Sharma said it would obtain shareholders’ approval in its annual general meeting to raise Rs 5,000 crore by issuing equity. 

IDBI Bank reported a 25% year-on-year rise in net profit to Rs 756 crore for the quarter ended June 2022.

The profit was partly due to a Rs 400-crore recovery from wind energy maker Suzlon. 

The bank’s total recoveries during the quarter was Rs 1,100 crore. A tax refund of Rs 171 crore and capital gains of Rs 141.66 crore from the sale of 19% stake in Arcil, an asset reconstruction company, came in. 

Improving asset quality also helped the bank provision less for bad loans.

“We hope to bring down our gross non-performing assets (NPAs) from 19.9% of gross advances to 15% by the end of March, 2023. Net NPA should also fall below 1.25%. This financial year we are expecting to make a recovery of Rs 4,000 crore of which Rs 1,136 crore we have already achieved in the first quarter,” Sharma said.

In the June quarter, IDBI Bank’s gross and net NPA ratios stood at 19.90% and 1.25%, respectively.

“Last year in June 2021, we had made recoveries of Rs 1,600 crore from bad loans. Of this Rs 868 crore was from two accounts - Kingfisher Airlines and Videocon - which had gone to interest income and recovery from written-off accounts. As a result, our operating profit was higher," Sharma explained.

The bank’s provisions were down 48% from the year-ago period to Rs 959.23 crore. Provisions for NPA also fell to Rs 1,10.03 crore versus Rs 199.16 crore a year ago. The bank’s provision coverage ratio stood at 97.79% as of June 2022, compared with 97.63% a quarter ago.

Net interest income, which is the difference between interest earned and expended, was 1% lower than the year-ago period  at Rs 2,488 crore. 

Net interest margin, a key metric of profitability, was 4 basis points (bps) lower at 4.02%, but  up 5 bps from the previous quarter.

“Now that we are out of the prompt corrective action (PCA), we have started onboarding corporate customers. We are examining 80 proposals worth Rs 8,000 crore,” said  IDBI Bank deputy managing director  Samuel Joseph.

While the bank will continue its predominant focus on structured retail loans, it will also look at corporate loans specially for the mid-corporate segment, Joseph added.

The bank has Rs 76,800 crore of technically written-off accounts. “These are fully provided for and as and when recoveries take place it will be a source of income for the bank,” IDBI Bank chief financial officer P Sitaraman said in a media call.

Profit of the bank came despite a 13% fall in total income to Rs 5,781 crore during the quarter. 

The bank’s cost of funds reduced by 35 bps to 3.63% for Q1 FY23 compared to 3.98% in Q1 FY22.

Deposits increased by 1% over the previous year to Rs 2,25,269 crore while gross advances rose by 9% YoY to Rs 1,70,390 crore as of 30 June 2022.