BANKS

IDBI Bank plans to cut NPAs to 15%, grow loan book

    IDBI Bank plans to transfer Rs 11,000-12,000 cr of bad loans to NARCL; loan book is expected to grow by 8-10% in FY22.
    • 29 July 2021

    IDBI Bank is planning to transfer Rs 11,000-12,000 crore of bad loans to the National Asset Reconstruction Company Ltd (NARCL) as part of its strategy to cut its non-performing assets ratio to 15% of advances by the end of this fiscal. This includes live bad loan accounts of Rs 7,000-8,000 crore while the rest have been written off.

    IDBI Bank, which walked out of the Reserve Bank of India’s prompt corrective action (PCA) list in March, expects the transfer of bad loans to NARCL and growth in advances to help it to bring down its gross NPA ratio from 22.71% to 15% by the end of FY22. The loan book is expected to grow by 8-10% in FY22.

    “Though we have been reducing our gross NPAs through recoveries, the percentage is not falling significantly due to the denominator issue. With advances growing, we will be able to bring down the gross NPA ratio. We expect to reduce our gross NPA ratio by 4-5% through growth in the advances. We will also transfer some bad loans to the NARCL, once it becomes functional. This would further reduce the gross NPA by another 5-6%," said IDBI Bank managing director and CEO Rakesh Sharma told reporters.

    “IDBI Bank may pick up 5% stake in NARCL. If we get a good deal, we are also planning to exit from Arcil,” he added.

    IDBI Bank holds 19% stake in Asset Reconstruction Company (India) Ltd (Arcil), and has invited bids to divest its stake. Incorporated in 2002, Arcil is owned by banks like State Bank of India (19.95%), IDBI Bank, ICICI Bank (15.52%) and Punjab National Bank. In November 2018, New York-based distressed investor Avenue Capital acquired around 27% stake in Arcil.

    As on 30 June, IDBI Bank’s gross NPAs stood at 22.71% of total advances, up 34 bps from the preceding quarter but down 410 bps from the year-ago quarter. Net bad loan ratio, though, improved to 1.67% due to aggressive provisions, down 30 bps from the preceding quarter and 188 bps from the year-ago quarter.

    After being lifted out of the PCA, IDBI Bank has onboarded 80 clients in terms of loan sanctions but disbursements are yet to happen. “We are sector agnostic. While we have expertise in corporate advances, the focus will be on mid-corporates,” said Sharma.

    Added IDBI Bank executive director Samuel Joseph, “We have onboarded 80 companies which are at various levels of discussion to sanction Rs 8,000 crore.”

    In the fiscal first quarter ended June, IDBI Bank posted a net profit of Rs 603 crore on the back of higher income, up 318% from the earlier year and 18% sequentially.

    Net interest income (NII) climbed 41% over the-year ago period to Rs 2,506 crore, but sequentially it was down 23%. Net interest margin (NIM) increased by 125 basis points (bps) to 4.06% while in the year-ago period it was 2.18% as the yield on advances improved and the bank brought down its bulk deposits.

    IDBI Bank said it recovered Rs 733 crore from the Kingfisher Airlines bad loan account. The bank thus recovered its full dues from the grounded airlines.

    Other income, comprising income from activities such as commission, fees, earnings from foreign exchange and derivative transactions, profit and loss from the sale of investment and recoveries from written-off accounts, jumped 63% over the year-ago period to Rs 1,639 crore.

    Provisions and contingencies were significantly higher over the earlier-year period but sequentially down. In Q1FY22, provisions made by the lender increased by 97% over the previous year to Rs 1,752 crore. At the end of 31 March 2021, provisions hit Rs 2,457 crore. The bank is also holding Covid related provisions of Rs 863 crore at the end of the fiscal first quarter ended 30 June 2021.

    During the quarter under review, the bank has made an additional provision of Rs 447.31 crore over and above the IRAC norms in respect of certain borrower accounts, King Fisher account in view of the inherent risk and uncertainty of recovery in these identified accounts.

    The bank’s provision coverage ratio stood at 97.42% at the end of Q1FY22 as against 96.90% in the March quarter. Out of total gross NPAs of Rs 35,594 crore, the bank has provided in full for Rs 32,817 crore. Recovery from write-off accounts for the bank improved to Rs 331 crore in Q1FY22 as against Rs 117 crore in Q1FY21 and Rs 269 crore in Q4FY21.

    “The bank has geared itself on all fronts to meet the challenges imposed by Covid including the likelihood of rise in customer defaults and an increase in provisioning requirements”, Sharma said.

    Deposits accretion fell 3.7 % sequentially to Rs 2.22 trillion as of June quarter. Share of low-cost deposits improved to 52.44 % in the June quarter versus 50.45% a quarter ago. The loan book degrew 4% sequentially to Rs 1.22 trillion.