IDBI Bank Prepares To Sell A Chunk Of Non-Core Assets To Raise Capital
IDBI Bank has identified five non-core assets, which it hopes to monetise by June 2018.
With almost a quarter of its loans having turned bad, IDBI Bank Ltd. is preparing for a garage sale of sorts, through which it hopes to raise capital to clean-up its books. The proceeds of these sales would, however, help the bank only marginally given that it has accumulated over Rs 50,000 crore in bad loans.
The state-owned lender has identified five non-core investments, in which it will sell stake as part of its asset monetisation plan, KP Nair, deputy managing director at IDBI Bank told BloombergQuint in an interaction.
These companies include:
- IDBI Federal Life Insurance Company
- IDBI Asset Management Ltd
- IDBI Trusteeship Services Ltd
- National Securities Depository Ltd (NSDL)
- NSDL e-Governance Infrastructure Ltd.
The bank is in the process of appointing advisers who will help with the sales.
We will be putting requests for proposal soon and will appoint advisers shortly. The sale process should be completed latest by June 2018.KP Nair, Deputy Managing Director at IDBI Bank
In an analyst call in June, IDBI Bank's chief executive officer Mahesh Kumar Jain had said that the bank was looking to raise Rs 5000 crore through non-core asset sale. However, once the advisers are appointed and the sale process begins, the bank will have a better idea of the valuation, Nair added, without committing to an amount that can be raised through asset sales.
IDBI Bank, which was first instituted as a development finance institution in 1964, has been among the lenders involved in setting up a number of institutions set up to aid growth in the economy. As such, over time, the bank has accumulated a variety of non-core assets, which it no longer needs to be involved with.
Often referred to as the ‘family silver’, these non-core assets are coming to the aid of the bank at a time when it has seen bad loans surge and capital levels drop to near regulatory minimums.
IDBI Bank currently has a capital adequacy ratio of 11.69 percent but this is after the government infused Rs 1861 crore into the lender in August. The government capital infusion prevented the bank from skipping a scheduled coupon payment on its Additional Tier-1 bonds.
On Tuesday, rating agency Moody’s downgraded IDBI Bank’s local and foreign currency bank deposit ratings to B1 from Ba2. While the bank has received Rs 1860 crore from the government and Rs 390 crore from Life Insurance Corporation of India (LIC), it still remains under-capitalised, said the rating agency in its note.
IDBI remains significantly under-capitalised, with a CET-1 (core equity tier-1) ratio of only 6.5 percent, which is below the current minimum core equity tier (CET-1) ratio norms after factoring in the requirements of capital conservation buffers.Moody’s On IDBI Bank (August 29)
Some of this capital shortfall can be covered through asset sales, according to the bank’s management.
The bank is already in the midst of selling 16.25 percent stake in micro, small and medium enterprises (MSME) financier, SIDBI. The bank has appointed SBI Capital Markets Ltd and has set August 31 as the cut-off date for bids.
IDBI Bank expects to close this sale by the end of September, Nair said.
Beyond Asset Sales
Asset sales are part of a four-pronged recovery plan initiated at the bank.
In addition to unlocking capital through strategic exits, the bank is also cutting operating cost, reducing the level of bulk deposits on its books and pushing to recover more bad loans from its defaulting borrowers. The lender is also unlocking the value of its real estate holdings by putting office complexes on the block where possible.
IDBI Bank, with a gross NPA ratio of over 24 percent, has the highest concentration of bad loans on its books, among the listed banks in India. In the quarter ended March 31, the bank had reported a loss of nearly Rs 3,200 crore, which then narrowed to Rs 853 crore in June. The bank is also under the Reserve Bank of India’s prompt corrective action (PCA) framework. This means that the bank is not allowed to expand its branch network or lend to risky companies. It is also expected to conserve capital and work towards returning to profitability.
Moody’s in its note said that despite the bank’s weak solvency profile, IDBI's funding and liquidity positions have remained fairly stable. “Nevertheless, given the dominance of corporate deposits, Moody's expects the risks to the bank's funding and liquidity position have increased because of its weak solvency profile,” said the rating agency while adding that this is specially true in regard to the bank's foreign currency book.