IDBI Bank puts stake sale on hold, awaits better days

02 Mar 2016


IDBI Bank Ltd has put its share sale to institutional investors on hold because of unfavourable valuation, a senior executive of the state-run bank said on Tuesday.

On 31 December 2015, the bank informed stock exchanges the government had approved a plan to raise Rs3,771 crore through a qualified institutional placement offer (QIP).

''We have put the QIP plans on hold for now because the price is not right at this point in time. The investor interest during our roadshow was very good but they wanted more clarity around the impact of AQR (asset quality review). Now that things are clearer, we will wait for the price to come back up,'' said Kishor Kharat, managing director and chief executive of the bank.

IDBI Bank's international roadshows were held between 14 and 25 January.

The fund raise was intended to prop up the debt-laden bank's weak capital base and also bring down the government shareholding.

The bank's capital adequacy ratio (CAR) - the ratio of bank's capital to its risks - as on 30 September stood at 11.66 per cent as against 11.71 per cent a year ago. Banks have to maintain a minimum CAR of 9.625 per cent as on 31 March 2016, according to the guidelines on the implementation of Basel III norms issued by the Reserve Bank of India.

The asset quality review of the RBI had also asked banks to recognise weaker assets as bad loans and make provision for it. This took a toll on the profitability of public sector banks in the quarter ended 31 December 2015.

On Tuesday, the bank announced a three-year turnaround plan in which the lender aims to double its total business to over Rs10 trillion by March 2019 from the current level of about Rs5 trillion.

The bank plans to raise Rs19,000-20,000 crore worth of equity capital before March 2019. For this, it will look at all available options such as QIPs and preferential allotment to large strategic investors.

About Rs6,500 crore of this will come from sale of non-core assets, Kharat said. ''We are expecting to raise between Rs1,200-1,500 crore by the end of this year through sale of non-core assets,'' he said.

Apart from this, the bank will also try to raise debt capital worth Rs4,000 crore by issuing tier-I bonds and Rs8,000-9,000 crore through tier-II bonds during the next three years.

The bank is also looking to raise additional capital by issuing bonds to foreign investors, Kharat added. ''We are going to conduct another roadshow on 7 March for our additional Tier-1 issuance. This is purely a non-deal roadshow as we just want to see international investor interest,'' he said.

If all these capital raising activities yield result, the bank's CAR is expected to be around 16 per cent by March 2019.

Last week, the bank said that it is looking to raise Rs1,500 crore from Life Insurance Corp. of India (LIC) through allotment of equity shares on a preferential allotment basis.

On Monday, finance minister Arun Jaitley, in his budget speech, said that the government is committed to reducing its stake in IDBI Bank to under 50 per cent. The government directly owned an 80.16 per cent stake in the bank as of 31 December. In October, minister of state for finance Jayant Sinha had talked about government plans to transform IDBI Bank along the lines of Axis Bank Ltd.

Meanwhile, the bank, as part of its turnaround plan, will try to bring down its gross non-performing assets (NPAs) to under 3 per cent by March 2019 from the current 8.94 per cent by growing its total business and realignment of its loan portfolio. The banks aims to have a near-zero net NPA by the end of financial year 2018-19.

IDBI Bank is looking to increase its advances to Rs.4.5 trillion from the current level of around Rs2.35 trillion by the end of 2018-19, showing a compounded annual growth rate of 24 per cent. Deposits too are expected to rise to Rs5.5 trillion by March 2019, from the current Rs2.85 trillion.

The advances growth will be supported by the bank's efforts to grow its retail lending book and a cautious approach towards growing its infrastructure and corporate loan book, Kharat said.

''It's not like we are going to cut down on growth in our corporate book, but we will be widening our customer base and try to expand in other sectors where we don't have much presence. All of our present customers will be serviced properly,'' he added.

The turnaround plan, analysts say, is too ambitious.

''It is one thing to grow one's loan book aggressively, but that coupled with lower NPAs looks like a difficult proposition. On the retail lending front too, it remains to be seen if IDBI Bank would be the preferred bank for a lot of first time borrowers,'' Ravi Shenoy, assistant vice-president- midcaps research, Motilal Oswal Securities, told CNBC-TV18.

Meanwhile, the bank is planning to introduce employee stock options (ESOPs) and variable pay schemes which can help the bank reward its employees better.

Since the bank's pay packages are not aligned with that of the Indian Banks' Association, it can afford to increase salaries for its employees based on a variable pay scheme, said Kharat. ''We have only just started discussions with our employees. We will be introducing these things once these discussions are over.''

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