The government is reviewing the planned strategic sale in IDBI BankNSE -0.09 % after a similar attempt to sell its stake in Air India failed to take off. The bank may issue fresh preferential shares, allowing multiple investors to participate, rather than seek to push through strategic sale to a single entity, said officials.
“We are looking at various options as there is a concern that there may not be enough interest given the bad loans on the book of the lender,” a senior government official told ET on condition of anonymity.
Lowering government stake in the bank through issue of preferential shares is one of the options on the table. Once government stake in bank falls to below 50% – from 81% at present – it will be able to function more independently.
IDBI Bank is bound by a separate law, so the rule that mandates a minimum of 52% government stake in other banks does not apply to it. It is therefore possible for the government to reduce its stake without any legal changes.
The government had in 2015 announced its intention to transform IDBI Bank on the lines of Axis Bank. Finance minister Arun Jaitley had said in his 2016-17 budget speech that IDBI Bank’s transformation had already begun and that the government would also consider the option of reducing its stake to below 50%. Heavy losses and mounting bad loans however delayed the restructuring plans. IDBI Bank’s gross non-performing assets or bad loans grew to Rs 55,588 crore in March 2018 from Rs 44,753 crore a year earlier.
“The bank’s management has assured that they will be making recoveries through Bankruptcy Code and otherwise, besides selling their non-core assets to raise fresh capital,” the official said.
The bank’s losses widened to Rs 5,663 crore for the quarter ended March 2018, up 77% from the Rs 3,200 crore loss reported for the year-ago quarter. The bank has said that it will put a record Rs 21,397 crore of bad loans from 30 large companies on the block.
On Monday, IDBI Bank’s managing director and CEO MK Jain was selected as the next deputy governor of the Reserve Bank of India.
IDBI Bank has been the biggest beneficiary of the Rs 2.1 lakh crore bank recaptialisation plan, with the government infusing around Rs 10,610 crore in 2017-18 to help the lender meet its minimum capital requirements.
Another government official, who did not wish to be identified either, said that a similar structure such as Stressed Asset Stabilisation Fund (SASF) could not be ruled out. “It is too early but given the bank’s exposure to most corporate loans that are already being resolved through the Bankruptcy Code such a structure also looks feasible,” he said.
In 2004, government had transferred IDBI Bank’s bad loans of Rs 9,000 crore in SASF when the lender was converted into a bank from a financial institution. “Around Rs 6,000 crore has been recovered,” the official said. The government, however, is not keen to push another state-run bank to take over stressed assets of IDBI Bank in order to clean its balance sheet.
Source: Economic Times