Loan book audit at IDBI Bank to identify stress areas ahead of stake sale

Audit report may form the basis of valuations in impending disinvestment by the government

In an effort to identify potential stress in its loan book, Life Insurance Corporation of India (LIC) owned IDBI Bank has commissioned a detailed audit of its loan assets.

Sources with knowledge of the development say, audit firm KPMG has been appointed for this process and a final report is expected to be submitted to the bank’s board in the coming weeks.

It is also gathered that the audit report may likely form the basis of valuations for Government of India’s stake sale in the bank.

Responding to an email sent by Business Standard, the bank's spokesperson, however, said, “The KPMG exercise was purely an internal process and not for any specific areas /issues.”

For the purpose of this audit, loans above Rs 50 crore are being closely scrutinised for probable default, said a source quoted above.

With the bank’s provision coverage ratio at 96 per cent as of September 2020 (highest in the sector) and having provided for and/ or written off a huge chuck of its stressed loans, the anticipation is that fresh, lumpy stress is unlikely to accrue.

“However, in the light of Covid, it makes sense to reaffirm the position on bad loans,” said another person aware of the audit.

LIC holds 49.24 per cent stake in IDBI Bank, while the government holds 45.48 per cent shares, as of end-December 2020. This is after factoring in for the minor stake dilution due to the recently concluded qualified institutional placement (QIP) for Rs 1,435 crore which concluded on December 18, 2020.

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The government had indicated its intention to completely exit its holdings in the bank in Union Budget 2020, though there hasn’t been any material progress in this regard.

In the QIP, apart from state-owned banks (such as Punjab National Bank, Bank of Baroda, State Bank of India, Indian Bank and Canara Bank) taking a sizeable chunk of the issuance, it is gathered that over ten financial institutions/entities also participated in the fund raise. These include foreign investors such as Societe Generale, BNP Paribas, Goldman Sachs, BofA Securities, Morgan Stanley and domestic investors such as Bajaj Allianz, Edelweiss and Tata AIG.

According to sources, some of the investors who have participated in the QIP may collectively acquire the government's stake in the bank. “Formal talks with these investors will resume in March,” said the person quoted above.

IDBI Bank was placed under Reserve Bank of India’s prompt corrective action in May 2017 and had made representations to the RBI for an exit from the restrictive regulations in January 2020. The final decision is still awaited.