Despite Odds, Idbi Scores
Thus, while IDBI had to pay out market determined rates for its own borrowings, especially for its huge tranches of bonds, it was constrained in passing on the full increase in costs to its customers.
Passing on costs carries with it the concomitant risk of hurting asset quality, which would prove self defeating in the long run. Perforce, IDBI has had to live with tighter spreads. Return on average assets declined marginally from 2.44 per cent to 2.41 per cent.
Indeed, IDBIs asset quality has suffered to some extent. While last year, sub-standard assets were only 6.4 per cent of total assets, this year the figure has gone up to 7 per cent. Doubtful assets stood at 3.3 per cent this year against 3 per cent in 1995-96. Year on year, the stock of sub-standard and doubtful assets shows a sharp increase of around 24 per cent. Thus, while IDBI added Rs 5,891 crore of fresh assets during the year, almost Rs 330 crore of its past assets turned to be doubtful.
The financial institution has provided fully for loss assets, and such assets have not been included in the asset portfolio. Effectively, the standard assets have come down from 90.6 per cent to 89.7 per cent.
In 1996-97, IDBIs sanctions declined 4.2 per cent to Rs 17,049 crore, reflecting the slower demand for investible funds in the economy. Disbursements, however, increased by 6.9 per cent to Rs 11,435 crore. IDBI raised resources aggregating Rs 11,779 crore in 1996-97, a rise of 12.2 per cent. Its dependence on the domestic market has also increased: about 85 per cent of its resources were raised by borrowings in India. For 1995-96, this figure was only 58 per cent.
With most borrowings in the form of high-cost domestic loans, profitability has suffered. Spreads, however, have been cushioned by increases in capital gains on sales of investment (Rs 8 crore), other income (Rs 27 crore), income tax write-back of Rs 25 crore and Rs 38 crore being lease equalisation for earlier years brought into the P&L account. While total income rose by 20.17 per cent to Rs 5,964 crore in 1996-97, gross profit grew only 17.06 per cent to Rs 1,633 crore over 1995-96. Net profit grew 13.6 per cent to Rs 1,144 crore in 1996-97.
On the expenditure front, interest cost was a dampener to growth. Interest and finance cost increased 22.59 per cent to Rs 4,168 crore. A significant change was that it managed to reduce other expenditure by Rs 5 crore to Rs 163 crore. The earnings per share stands at Rs 16.76 and the book value is Rs 107.17. At the current price of Rs 91.75, the market still discounts the share to its book value.