LIC Deal Likely To Close In 3 Months: IDBI Bank’s B Sriram
IDBI-LIC deal likely to close within 3 months, says IDBI’s B Sriram
IDBI Bank is looking to complete the transfer of majority ownership from the government to Life Insurance Corporation (LIC) of India within the next three months, said B Sriram, managing director and chief executive officer of the bank.
In an interview with BloombergQuint on Thursday, Sriram said that while the government has given its no objection certificate for transfer of ownership, the bank is still awaiting regulatory clearances and a detailed plan from LIC before the deal is closed.
On August 1, the Union Cabinet approved the proposal for LIC to acquire 51 percent stake in IDBI Bank, thereby taking control of the state-owned bank. The expectation is that the bank will receive Rs 10,000-13,000 crore through the deal, which will provide much needed capital for the lender.
Outlook For Asset Quality
The bank reported a gross non-performing asset (NPA) ratio of over 30 percent as on June 30 - the highest across the industry. Outstanding gross NPAs rose to Rs 57,807 crore at the end of the first quarter, up from Rs 55,588 crore in March.
Sriram explained that the bank had reported slippages worth Rs 7,800 crore in the first quarter of the current financial year, of which, nearly Rs 5,000 crore came from one large corporate account alone. Corporate slippages during the quarter were at about Rs 7,000 crore, with the remaining slippages coming from the retail loan book.
“It is the corporate book which is giving us problems continuously,” said Sriram.
Sriram added that the bank has Rs 7,600 crore in loans under the special mention accounts (SMA) category, which would imply that future additions to NPAs would be limited.
Shedding The ‘PCA’ Tag
The bank’s poor operational performance and low capital adequacy levels have prompted the Reserve Bank of India to place it under the prompt corrective action (PCA) framework.
According to information obtained by BloombergQuint through the Right To Information (RTI) Act, the banking regulator has asked IDBI Bank to restrict the expansion of risk wieghted assets, reduce high risk exposures, reduce high cost bulk deposits and review non-core assets to enhance capital.
Owing to these restrictions, IDBI Bank’s overall loan book has dropped to Rs 1.59 lakh crore, down 15 percent from Rs 1.87 lakh crore a year ago. The bank’s corporate loan book fell 21 percent on a year-on-year basis to Rs 99,418 crore.
Speaking about the restrictions placed on IDBI Bank, Sriram said that the regulator was yet to clarify as to how long these will continue. He added that the bank would approach the RBI with a plan once the transaction with LIC is complete.
Watch the complete interview below: