IDBI Bank and its new majority shareholder, state-owned Life Insurance Corporation of India (LIC), have chalked out a plan which includes selling non-core assets and bad loans while leveraging synergies to revive the fortunes of the country’s most capital-constrained lender.
As part of the turnaround plan, the bank has already put IDBI Federal Life Insurance Co. Ltd on the block and the lender said it will now look at paring its stake in IDBI Asset Management Ltd.
“The long-term strategy includes common investment strategy, use of other resources like real estate, commercial and residential space, IDBI Bank branches, premises and ATMs, digital marketing, rationalisation of the common subsidiaries in mutual funds, life insurance etc,” the bank said in a statement.
The strategic alliance will augment IDBI Bank’s retail business, de-risk its business portfolio and ensure increase in its other income, margins and operating profit, it added.
IDBI Bank chairman and chief executive Rakesh Sharma had said during a post-earnings conference last month that the lender would be able to monetise its insurance unit by around September. He had also pointed to the sale of investments worth Rs 1,000-1,200 crore in shares.
In addition, IDBI Bank has invited expressions of interest from asset reconstruction companies (ARCs) and other financial institutions to sell five non-performing assets (NPAs) worth Rs 1,248 crore, including one loan worth Rs 1,056 crore given to the debt-laden Reliance Communications.
IDBI Bank, which has among the worst non-performing asset (NPA) ratios with almost 30% of outstanding loans going bad, has started revamping its Performance Measurement System to make it more objective and system-driven.
It hopes these steps will boost its financial performance. IDBI Bank’s net loss widened to Rs 4,185.48 crore in the third quarter of the current financial year, nearly tripling from Rs 1,524.31 crore in the year-ago period. Total income fell to Rs 6,190.94 crore for the October-December period, compared with Rs 7,125.20 crore in the previous fiscal.
The bank said it may also opt to raise capital from the market through Tier-I bonds after this month. On December 28, LIC had pumped Rs 14,500 crore into the bank as part of the takeover process. It injected another Rs 5,030 crore in January.
To bolster the weak bank, the government had in June last year granted approval to the country’s largest insurer to increase its shareholding in IDBI to 51%, thereby taking control of the lender.
On Monday, Insurance Regulatory and Development Authority of India (IRDAI) chairman Subhash Chandra Khuntia said the regulator had a sought proposal from LIC for paring its shareholding. IRDAI stipulates that insurance companies should hold only up to 15% stake in any listed entity.
But LIC, with a special dispensation from IRDAI, holds more than the limit in some state-run banks. Besides, the Reserve Bank of India (RBI) permits a ceiling of 15% for promoter stake in a private-sector bank.
IDBI Bank also said it has revamped its senior management to work towards professionalising and broad-basing the board.
The LIC chairman has been appointed as the non-executive chairman of IDBI Bank. CEO Sharma, whose six-month term at IDBI Bank will end this month, is likely to be appointed for a further period of three years.
IDBI Bank has already started the process of appointing two new deputy managing directors via open competition from the market.
“The new board will be entrusted with the responsibility of charting out a fresh growth strategy for the bank and revamp the corporate governance structure to ensure best-in-class business practices,” IDBI Bank said in a statement.
The bank has also inducted two new independent directors -- a professor from the Indian School of Business and a retired executive director at the Reserve Bank of India.
A joint task force has been constituted to chart the future roadmap and implement the board’s decisions.