IDBI Bank hopes to come out of the regulatory restrictive Prompt Corrective Action (PCA) after taking a host of measures, including closure/merger of branches, conversion of 31 loss-making branches into outlets, divestment in non-core assets, setting up of separate stressed assets management group and focus on retail and good quality corporate business.
Amid talks of part stake sale by the government, IDBI Bank’s turnaround strategy that kickstarted in May last year has been bearing fruits for the bank. It has also taken steps to incentivise its employees and address their concerns assuring them of bank’s performance, going forward, said, Krishna Prasad Nair, Deputy Managing Director of IDBI Bank
In an interview, KP Nair said his bank has already monetised Rs 4,500 crore through sale of non-core assets, got approval from RBI to close down or merge the branches and ATMs with low footfalls and will end the March quarter with its corporate book below 60 percent from 64 percent over a year back, reducing its large exposure risks.
Among the investments that IDBI Bank sold are its 15 percent stake in SIDBI (Small Industries Development Bank of India), now left with less than 1 percent stake, 5 percent of its 7.5 percent stake in Clearing Corporation of India; entire 30 percent stake in NSE e-Governance Infrastructure; 0.5 percent in NSE (now left with 1 percent stake); and a building in BKC to SEBI.
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The 80.9 percent-government-owned lender has been under PCA imposition by the Reserve Bank of India since May 2017 due to its substantially high level of non-performing assets (NPAs), weak capital strength and return on assets (ROA).
The bank’s gross non-performing assets (NPAs) stood at 24.72 percent of its total loans as of December 2017, the highest among Indian banks. This was marginally higher in the September quarter at 24.98 percent but lower at 15.16 percent a year ago.
Net NPAs also inched lower to 16.02 percent versus 16.06 percent in September and 9.61 percent a year ago.
Nair said IDBI bank’s turnaround strategy will help it mitigate the risks to bring it out of the PCA framework by the end of 2018-19.
Here is an edited excerpt from the interview:
What is the latest progress on your turnaround strategy?
One of the things that is on track is the non core divestments which is actually a part of our overall turnaround strategy. We had said at the beginning of the year that we would be doing something like Rs 5,000 crore. We have been able to do close to Rs 4,500, including one property sale, yes the BKC one.
The other major transaction which is on the cards is the divestment of our IDBI federal insurance joint venture which is expected to complete during the first quarter. We are also looking at NSDL stake sale and hopeful we will be able to make some progress during the current financial year. We have 30 percent stake in it.
So now, mainly insurance, NSDL and there will be some possibly some property sale here and there. We should be through with over 50 percent of the monetisation programme so far.This is part of our capital augmentation.
What is being done on the NPA management?
We have created a separate vertical which looks specifically into NPAs, we did that in the beginning of the last financial year itself and that helped us in recovery as well as after upgradation. We have a very large corporate group, corporate group and we also have a mid corporate group – these are the three main corporate groups. Prior to creation of our NPA management Group (NMG), which will now be called as a Stressed Asset Management Vertical. Post this, a large part of our NPAs were transferred lock stock and barrel to this group.
In case of NCLT they would focus on how it goes through…and making sure if there is a stress still developing…it should be addressed and contained so that they don’t become NPAs.
The corporate group helps in ensuring that an AA or AAA are able to get sufficient attention to that so as to grow my book.
How has business changed after PCA framework?
Under PCA, we cannot open more branches, which is ok with us as the whole retail banking game is shifting from brick and mortar branches to digital banking. The other part was the capital augmentation drive. Once that improves to the desired level then we can expect lifting of PCA situation by the regulator. We should be able to see that the PCA actions are mitigated by the end of the financial year.
We are also very careful in lending and are ensuring risk weighted assets are as low as possible. We are looking at cutting down our loss making branches. We have got approval from RBI to convert 31 brick and mortar branches into banking outlets and that will save costs. We should be able to close by the end of this first quarter.
There are also other chronic loss-making branches and ATMs (about 100) which will be closed or merged…those with low footfalls, we are keeping a close watch on them.
How are you addressing the negativity issues around IDBI Bank among your employees? Any incentive plans drw?
The bank has made losses for sometime. So there is a conscious effort by the management to talk to the employees, we are trying to address by talking to the zonal centres and regional offices to pass on the message on what is the bank doing, how are we addressing the issues, planning a turnaround strategy or the timeframe we are looking at to completely address the problem. We also try to address what disquiets them and that they can also inform this to the customers who may have concerns.
We have drawn up incentive plans for recovery and also towards augmentation of fee income. There are a good number of people eligible for these incentives.
Are insolvency litigations making banks cautious of further lending?
Obviously, processes have tightened and we our rigorous lending process is more stringent now. (We are) also looking at lending to a better class of asset. Even as we grow, we will be conscious of the quality of credit and the resultant rating of the Asset. We are looking at better-rated assets.
What do you think of privatization of public sector banks?
I would say that temporary issues going on in banking sector and I would not take any decision as a knee-jerk reaction. I think quality of governance was always sought to be improved and it is an ongoing dynamic area factoring in the external environment situation as time moves on. I think it (banking) is ownership-neutral.moneycontrol