Q1 Results: IDBI Bank’s Bad Loans Rise Further In First Quarter

IDBI Bank, which has agreed to sell controlling stake to state-run Life Insurance Corporation, remained India’s worst lender by asset quality as gross bad loans rose and losses widened in the April-June period.

Gross non-performing assets of the public sector bank rose to 30.7 percent of its loan book in the three months to June from 27.9 percent in the preceding quarter, the lender said in an exchange filing. That’s the highest for any Indian bank.

Gross bad loans rose 4 percent sequentially in absolute terms. What added to deterioration of asset quality was the near 15-percent contraction in its loan book as the company continues to focus on preserving its capital.

Operational Highlights

• Net loss in the June quarter widened to Rs 2,410 crore from Rs 850 crore a year ago. The extent of the net loss was cushioned by a tax write-back of Rs 1,745 crore.
• Net interest income, or the core income, rose 16.8 percent year-on-year to Rs 1,638.62 crore.
• Operating profit rose 28 percent year-on-year to Rs 1,081 crore. But it’s lower than Rs 2,362 crore in the March quarter.
• Provisions fell to Rs 4,602 crore from Rs 10,773 crore sequentially as the bank wrote-back excess prior provisions on mark-to-market losses worth Rs 488 crore. It also deferred part of these provisions to subsequent quarters—a window provided by the central bank.

Not Much Left To Sell

The bank earned other income of Rs 643 crore during the quarter, a sharp decline from March quarter’s Rs 2,700 crore. There was no sale of non-core assets during the quarter.

The bank management in an earnings conference call said the lender has divested most of its stake in various non-core assets, including in NSDL and real estate in the last financial year. To that extent, the bank’s other income will be lower in FY19. That’s in contrast with lenders like Punjab National Bank Ltd. which expects to raise significant amounts via stake sales in various assets in the quarter ending September to meet capital needs.

IDBI Bank plans to divest another 6 percent stake in NSDL and its stake in the National Stock Exchange by the end of 2018, the management said. The lender also has 1 percent stake in SIDBI, having divested 2.5 percent in Clearing Corporation of India in early August. But these residual stakes are not expected to bring in large capital, the management said.

Awaits LIC To Take Next Step

The state-owned lender, which last week received cabinet’s nod to sell 51 percent controlling stake to Life Insurance Corporation, awaits communication from the insurer’s board on the modalities of capital infusion, the management said. In case of a preferential issue, the deal could take 45 days to go through and longer in case of an open offer, B Sriram, managing director and chief executive officer, said in the earnings conference call. SEBI guidelines on open offers and preferential issue will determine the price at which LIC will inject funds into the bank, Sriram said.

The management refuted reports of carving out its real estate assets before the LIC stake purchase. The deal will bring in much-required funds for the bank, which is struggling with its capital ratios given its worsening asset quality. The bank’s common equity tier-1 capital ratio stood at 5.84 percent as of June 30, well below the Reserve Bank of India’s requirement.

Asset Quality & Provision Cover

IDBI Bank has an exposure of about Rs 30,000 crore to the power sector, of which Rs 7,300 crore is non-performing loans and another Rs 10,000 crore is stressed, according to its investor presentation.

Exposure to accounts under the government’s Samadhan scheme—11 stressed power assets shortlisted by State Bank of India with a total 12-15 gigawatt capacity and debt burden in the range of Rs 80,000-90,000 crore.

The bank has made a high provision cover of 73 percent on the RBI-listed exposure and recovered Rs 1,081 crore from resolution of one account under RBI’s first list of accounts. The lender also carries a provision cover of 65 percent on exposure to NCLT cases outside of the RBI’s two lists, the management said. That suggests that the incremental provisioning requirements on these accounts will not be too high in the future quarters.

The bad news lies in the quality of its corporate book, with just 22 percent of it being ‘A and above’ rated and 15 percent being rated ‘B’. As much as 47 percent of the book is below BBB rated and 16 percent is not rated.

The bank also passed special enabling resolutions at its AGM on Aug. 13 to raise up to Rs 5,000 crore via share issuance and another Rs 5,000 crore via bond issuance.

IDBI Bank’s share price fell as much as 3.7 percent after the earnings were announced. It recouped some of the losses to close 0.17 percent lower compared with a 0.18 percent gain in the NSE PSU Bank Index.