IDBI Bank to resume corporate lending in limited way for existing customers

IDBI Bank, which has been under the Reserve Bank of India's (RBI’s) prompt corrective action, will resume corporate lending in a limited way to existing customers with a high credit rating. 

It has received the RBI’s nod for taking an exposure to clients.

The bank was waiting to meet capital adequacy norms before starting corporate lending. 

It received more than Rs 9,000 crore as equity capital from Life Insurance Corporation of India and the government in the second quarter. LIC holds 51 per cent in the erstwhile public sectoro bank.

Rakesh Sharma, managing director and chief executive, IDBI Bank, said, “The RBI had given some relaxation in doing business based on the results of the March quarter. But we were going slow as in June because capital was below regulatory requirements.”

Its capital adequacy ratio was 8.14 per cent, with tier 1 at 6.1 per cent at end of June 2019. There was certain gap in meeting regulatory norms for capital adequacy.

The bank is using capital it received to make provisions for bad loans, meet capital adequacy and support business growth.    

“Now, the capital bank received in the second quarter will take care of growth requirement. RBI has given relaxation in extending credit to higher rated accounts. For existing accounts, we can do some enhancement”, he said.  

Being under the PCA regime, the RBI prescribed restrictions in giving loans. There is cap of Rs 5 crore on taking an exposure. Also it could not lend to companies and partnerships. It could lend only to individuals.

Having learnt from the past, the bank will be extra careful about where we have to do business. Main focus will continue to be on retail. The business level anticipated for 2019-20 is that the ratio of retail to corporate should be 55 to 45 per cent, Sharma added.

The bank’s net non-performing assets stood at 8.02 per cent at the end of first quarter ended June 2019. Bank has already indicated that its net NPAs will be below 6 per cent by the end of the second quarter (September 2019). Some accelerated provisioning was done in first quarter and some will be done for second quarter by using capital infused by government and LIC, Sharma said.

Referring to monetizing holding into two subsidiaries, he said bank expects to sale stake in Asset management unit (mutual fund) by December 2019. 

As for life Insurance sector entity – IDBI Federal where bank holds 48 per cent stake – target is March 2020. IDBI Bank being subsidiary if life insurance company LIC, it had to take decision to exit from IDBI Federal. Federal Bank and Belgian insurer Ageas hold 26 per cent each in the insurance company.

Bank also has certain equity investments which would also be sold. Bank has already started process for selling stake (over one per cent) in National Stock Exchange (NSE). The bank expects to generate up to Rs 1,500 crore through sale of non-core assets in 2019-20, Sharma said.

There is plan to enhance capital adequacy also. Bank was receiving capital in the form of equity, helping to build common equity tier I (CET1). There is also good scope to raise tier II capital by issuing bonds. So far it has not raised that capital. The board has already given approval to raise up to Rs 3,000 crore of tier-II capital. 

“Depending on rates (yields), once bank is out of PCA regime, we expect revision in ratings. If not Rs 3,000 crore, we can raise Rs 2,000 crore which should help to improve profile,” he added. 

Action plan 

• Start lending to exiting corporate clients 
• Complete stake sale in MF, insurance units 
• Monetise investment in NSE, ARCIL 
• Generate up to Rs 1,500 crore from non-core assets 
• Raise up to Rs 2,000 crore in tier-II capital