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IDBI Bank, lender with worst asset quality, looks to sell mutual fund unit
Photo Credit: Satyakam Banerjee/VCCircle

IDBI Bank Ltd has put its mutual fund business on the block, joining a bunch of lenders that are selling their asset management arms to ease the burden of high bad loans.

The bank, which has the worst asset quality among Indian lenders, has invited bids to sell its entire stake in IDBI Asset Management Ltd and IDBI MF Trustee Company Ltd. 

The bank has appointed ICICI Securities as the adviser for the bids and transactions. Interested bidders have until June 10 to submit their expressions of interest, the bank said in a newspaper advertisement. 

IDBI Bank is the latest lender looking to sell its mutual fund arm. India's mutual fund industry is highly competititive with more than three-and-a-half dozen players. Most Indian banks operate a mutual fund business, either alone or in joint ventures with local and foreign companies. But a handful of lenders are now selling these units and other non-core assets in the wake of high bad loans on their books.

Last year, for instance, state-run Punjab National Bank sold its stake in its mutual fund joint venture to partner Principal Financial Group Inc. In December, Dewan Housing Finance Corp decided to sell its stake in the mutual fund business to its US partner Pramerica Financial, Inc.

IDBI Bank has been struggling with a mountain of non-performing assets for the past few years. In fact, the lender has the worst asset quality among Indian banks, with almost 30% of its outstanding loans going bad. 

The move to divest the mutual fund arm comes around a year after state-run Life Insurance Corporation decided to buy a 51% stake in IDBI Bank.

At the time, the Insurance Regulatory Authority of India had allowed LIC to invest around $1.46 billion in IDBI.

LIC raised its stake from 8% to 51% by subscribing to new preference shares, with media reports saying that the insurer paid around Rs 13,000 crore. The bank, which had posted losses of almost Rs 5,000 crore in 2015-16, froze its expansion plans in February 2017.

In March, both IDBI and LIC formed a plan to improve the bank’s books through measures such as selling non-core assets. 

“The long-term strategy includes a common investment strategy and the use of other resources like real estate, commercial and residential space,” the bank said at the time.

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