No Cut In Govt Pie In Idbi Post-Corporatisation

The government will not cut its stake in the Industrial Development Bank of India (IDBI) even after its corporatisation.

"It will continue to hold a 58 per cent stake for the time being. After corporatisation, we will look for a merger with a large unlisted public sector bank," said IDBI deputy managing director T M Nagarajan. He refused to identify the bank.

Even though the government will continue to hold the majority stake in IDBI, corporatisation will make the institution a board-driven company on line of ICICI. "The statute will change as it will no longer be governed by the IDBI Act but the mandate will remain the same. It will continue to play the role of a financial institution till it becomes a bank," Nagarajan said.

 

The government has taken the first step to revive IDBI by allowing it to convert IBRD loans and government funds into long-term preference capital.

"A large portion of these funds will become part of IDBI's Tier I capital and hence the capital adequacy ratio will go up by around two percentage points from about 12 per cent to 14 per cent," Nagarajan said.

IDBI is planning to use the funds to make additional provisioning and clean up the balance sheet.

"The priority is cleaning up the balance sheet and not growth. Once the cleaning-up process is over, the rating agencies, which have downgraded IDBI from AAA to AA+, are expected to re-rate the institution," Nagarajan said.

Following the rating downgrade, IDBI is finding it difficult on the resource raising front as wholesale investors have turned lukewarm to the institution's bond programmes. At the retail level, however, it continues to attract good investment.

The institution, which is suffering from interest rate mismatches (interest outgo on liabilities is higher than interest income), showed marginal decline in asset growth last year. The trend has been continuing this year, too, with asset base declining further in the first nine months of the year. Its net non-performing assets are pegged at around 14 per cent.

"We are addressing the operational problems on a war-footing. There is a filtering process put in place and we are taking short term exposure only in quality assets. We have told corporates that no amount of pressure can work. They will have to pay up or face the music. IDBI cannot be taken for granted," said Nagarajan.