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Q2 Results: IDBI Bank Reports Large Loss As Bad Loan Continue To Rise

IDBI has reported a gross NPA ratio of nearly 32 percent - the highest in the industry.

A man speaks on the phone in front of an IDBI Bank branch. (Photograph: Dhiraj Singh/Bloomberg)
A man speaks on the phone in front of an IDBI Bank branch. (Photograph: Dhiraj Singh/Bloomberg)

IDBI Bank Ltd., which is in the midst of an ownership transition, reported a large loss in the second quarter of the current financial year as bad loans continued to rise.

The bank reported a net loss of Rs 3602.49 crore in the July-September period compared to a loss of Rs 197.84 crore in the same period last year. Net interest income, or the bank’s core income, fell 21.5 percent to Rs 1300.9 crore compared to Rs 1657.5 crore in the same period last year.

Asset quality pain for the bank, which already has the highest proportion of bad loans, continued.

The gross non-performing assets ratio rose to 31.78 percent in the second quarter compared to 30.78 percent in the first quarter of the year. In absolute terms, too, bad loans rose to Rs 60,875.49 crore in the July-September period compared to Rs 57,807 crore in the previous three months.

Provisions for NPAs stood at Rs 5481.64 crore in Q2 versus Rs 4602.55 crore in Q1. Post provisioning, the net NPA ratio was at 17.30 percent at the end of the second quarter compared to 18.76 percent in the previous quarter.

The bank expects recoveries of close to Rs 7500 crore over the next two quarters, said Rakesh Sharma, MD & CEO of the bank at a press conference. Of this, Rs 4500 crore will come through accounts which are being resolved under the Insolvency and Bankruptcy Code.

26 percent of the bank’s total NPAs are currently undergoing insolvency proceedings, Sharma said.

Nearing Completion Of Ownership Transition

IDBI Bank, an erstwhile development finance institution, is in the midst of an ownership transition.

Earlier this year, the government approved a transfer of a majority 51 percent holding to Life Insurance Corporation of India. In October, the bank’s board approved a preferential allotment of shares to LIC.

Sharma said the bank has received approval from the Reserve Bank of India for the ownership change. Approval from the Competition Commission and final approval from the Securities and Exchange Board of India is awaited.

LIC’s open offer for IDBI Bank shares is set to kick off on Dec. 3. LIC has offered to acquire 204.15 crore equity shares, representing 26 percent stake in IDBI Bank as per the Securities and Exchange Board of India’s regulations. The offer to buy shares at Rs 61.73 apiece will close on Dec. 14.

At the end of the September quarter, the bank’s capital adequacy ratio stood at 6.22 percent and its common equity Tier-1 (CET-1) ratio stood at 3.87 percent.

The bank, which is under the RBI’s prompt corrective action framework, hopes that fresh capital from LIC will hasten the process of cleaning up the bank’s books. Earlier this year, the bank said that it would stop corporate lending and focus on retail lending and liabilities.

The bank’s advances were down 14 percent over last year. Retail advances make up 46 percent of this. Deposits fell 2.2 percent over last year but savings deposits rose 5.4 percent.

Opinion
LIC’s Open Offer For IDBI Bank’s Public Shareholders From Dec. 3