Bad loans: IDBI Bank forms new vertical to recover over Rs 5,000 cr in FY18

Reeling under a pile of bad loans, ailing public sector lender IDBI Bank has formed a division to coordinate recovery on stressed loans, especially the big accounts.

 
The Mumbai-based lender says it aims to recover and upgrade at least Rs 5,000 crore of such debt in the current financial year, ending March 2018.
 
To control cost, it will also curb staff hiring for at least a year and reduce outsourcing. And, shift back-office functions located in prime premises. A plan on these is being finalised.
 
Loan recovery at present, Managing Director and Chief Executive M K Jain told this newspaper, is scattered across the corporate, SME (small and medium enterprises) and retail (to individuals) functions. Now, one division (“vertical”) will handle this, for focused and timely action. Prevention of further slippage is a priority; this rose to Rs 27,575 crore in 2016-17, from Rs 19,087 crore in 2015-16. Recoveries plus upgrades were Rs 4,849 crore in FY17.
 
The MD said they had identified three categories of stressed loans to concentrate on. The first is where IDBI is the consortium leader. It would explore the scope for “hard recoveries” in such cases. The second is where it is sole lender or in a multiple banking relationship covering small and medium size loans. The third lot is where the bank is a member (junior) of a consortium, where the fate is decided by bigger lenders.
 

Given the stress in the corporate sector, the bank will restrict growth in loans to this segment. It will focus on increasing the retail (individual) and priority sector asset base. This will help the bank to reduce risk-weighted assets and improve the capital adequacy ratio (CAR) in the short term.
 
Already under the Reserve Bank’s Prompt Corrective Action watch, it is preparing to monetise stake in some subsidiaries and strategic investments, executives said.
 
IDBI Bank stock has taken a beating after it reported a net loss for a second year in a row. Its stock price is down by 10 per cent from the closing value of Rs 70 on May 18, a day before the results were announced. In the year ended March 31, the net loss was Rs 5,158 crore, against a net loss Rs 3,665 crore in FY16.
 
IDBI is also in discussion with its majority owner, the central government, for a turnaround plan. That entails milestones and commitments in areas like cost control, reorganisation of structure and improving the financial profile. This would form the basis for capital infusion by the government, for meeting the CAR norms and for business growth. The government had 73.98 per cent of the equity at end-March.
 
Three rating agencies — CRISIL, ICRA and Moody’s — have downgraded various debt instruments of IDBI, citing weak profitability and deteriorating asset quality, resulting in erosion of its capital.