IDBI Bank to cut corporate loan book, sell non-core assets
Hit by huge losses and bad loans, IDBI Bank on Thursday set out a turnaround plan that includes raising additional capital and selling non-core assets to help the public sector bank to improve its financial position and reassure investors after Moody’s downgraded its rating to “Ba2”, below investment grade, from “Baa3”. The bank announced the plan, which will also include curbing its rising corporate loan book and cutting costs, on the day when Moody’s Investor Service became the second rating agency to downgrade its debt this week. “We are looking at all avenues to improve our capital position and bring the bank on the recovery track,” said Mahesh Kumar Jain, IDBI’s managing director and CEO, in a statement.
The Reserve Bank of India (RBI) recently invoked its prompt corrective action (PCA) framework on IDBI Bank because of its rising bad loans and negative return on assets. In the year ended March 31, 2017, the bank posted a net loss of Rs 5,158 crore as against net loss Rs 3,665 crore in fiscal 2016. The bank’s gross NPAs almost doubled to 21.25 per cent of the gross advances in the fourth quarter of the last fiscal compared to 10.98 per cent in the corresponding period of the previous financial year. The net NPAs were 13.21 per cent against 6.78 per cent.
Jain said the bank will look at reducing its operational cost and sell non-core assets over a period of time. “We will look at aggressive recovery and cost cutting measures and plan on churning our corporate book and risk weighted assets which should also ease the pressure on capital,” he said. The bank further said the focus now would be more on retail and priority sector and will limit its growth in corporate segment, due to higher stress in the sector.
“This will help us to reduce risk weighted assets and improve capital adequacy ratio (CAR) in the short term,” Jain said. Moody’s downgraded its rating for IDBI to “Ba2”, below investment grade, from “Baa3”, citing a “significant deterioration” in IDBI’s financial profile and “extremely weak” capital position. Moody’s added IDBI’s common equity Tier 1 ratio, a key metric of capital, stood at 5.64 per cent, just above the minimum central bank requirement of 5.5 per cent.
The rating agency said it expected IDBI to continue to experience “asset quality issues” over the next 12-18 months. The downgrade came just two days after local agency ICRA downgraded a slew of IDBI’s debt. The stock had dropped nearly 22 per cent this month.