Govt capital infusion in IDBI on course

Bank is also readying an agenda for monetising of stake in some subsidiaries, strategic investments

The government’s plan for infusing capital in ailing public sector lender IDBI Bank are on, despite the Reserve Bank (RBI) putting it under Prompt Corrective Action (PCA) and the rating downgrade after the Mumbai-based lender posted a net loss for 2016-17.

Senior IDBI Bank officials said it was in discussion with the government, the majority owner, for a turnaround plan. That would mean agreed-on milestones and commitments from the bank in areas like cost control, reorganisation of structure and improving the financial profile. This would form the basis for a  capital infusion, for meeting capital adequacy norms and business growth.

IDBI's stock has taken beating after it reported a net loss for a second year. It closed 6.4 per cent down at Rs 61 on the BSE exchange. The government held 73.98 per cent of the bank's equity at end-March.

The bank is also readying an agenda for monetising of stake in some subsidiaries and strategic investments, an executive said. 

On Tuesday, rating agencies CRISIL and ICRA had downgraded various of its debt instruments. "The downgrade takes into account the substantially weak operating and financial performance during the fourth quarter of fiscal 2017 and in fiscal 2017 overall, which has resulted in a significant erosion of its capital (CET-I)," ICRA said.

In the year ended March, the net loss was Rs 5,158 crore, as against a net loss Rs 3,665 crore in 2015-16.

Gross non-performing assets (GNPAs) jumped to Rs 44,752 crore by end-March (21.25 per cent of the total), up from Rs 24,875 crore (11 per cent) a year before and from Rs 35,245 crore (15.2 per cent) at end-December 2016. Net NPAs were up to Rs 25,205 crore (13.2 per cent) by end-March, up from Rs 14,643 crore (6.8 per cent) in March 2016.

As the losses during FY17 far exceeded the government's capital infusion, CET-I was lower at 5.64 per cent, as compared to 7.98 per cent as on end-March 2016. 

RBI, as mentioned earlier, had put it under a PCA regime, due to the high level of net NPAs and negative return on assets.

This would mean mandatory corrective action such as raising of capital levels, restricting the dividend payments and branch expansion. In an extreme scenario, there might be restrictions on management compensation.