IDBI Bank posts higher net loss of Rs 4,185 crore despite improved asset quality

IDBI Bank Monday reported a higher net loss of Rs 4,185.48 crore on a huge jump in money set aside for potential loan losses, even though the overall asset quality has improved. The crippled lender had reported Rs 3,602 crore net losses on the previous quarter and a much lower Rs 1,524 losses in the year-ago period.

The state-run bank, now majority owned by life insurance behemoth LIC, is targeting to come out of the restrictive prompt corrective action (PCA) framework in another nine months, chief executive and managing director Rakesh Sharma told reporters. "We are now good on capital and leverage, but it is only net non-performing assets which needs to be worked on. It will take us two-three quarters more to come out of the PCA" he said.

Gearing up towards the net NPA requirement of 10 percent, the bank increased its provision coverage ratio by over 18 percentage points to 75 percent as at the end of the reporting quarter, which pushed down the net NPAs to 14.01 percent from 17.30 percent three months ago. The slippages came down to Rs 2,211 crore, resulting in the gross non-performing assets coming down to 29.67 percent from an industry record of 31.78 percent in the previous quarter.

There may also have been a denominator effect, as the PCA restrictions ensured that the overall assets of the bank come down to Rs 1.52 lakh crore from the Rs 1.83 lakh crore in the year-ago period. Provisions for bad assets shot up to Rs 5,074 crore from Rs 3,637 crore in the year-ago period, but Sharma quickly pointed out that the number for the reporting quarter includes over Rs 3,000 crore of provisions which are more than required done expecting reverses on power sector loans.

The recoveries from NPAs came at Rs 3,440 crore as against Rs 537 crore in the year-ago period and helped the bottomline. It is targeting Rs 4,500 crore in Q4 recoveries and expects to end FY20 with Rs 12,000 crore of recoveries, Sharma said. It has nearly Rs 25,000 crore exposure to the two NCLT listed accounts and has set aside 80 percent provisions for them, Sharma said, adding the bank will not put Essar Steel on the block as yet.

Despite the decline in loan book, a 0.08 percent expansion in net interest margin to 1.88 percent resulted in the core net interest income growing by 4 percent to Rs 1,357 crore, while the other income nearly halved to Rs 698 crore. Share of the higher yielding retail loans improved by 7 percentage points to 48 percent of the book, signifying a complete reliance on low-ticket advances for fresh loans.

The share of the low cost current and saving accounts deposits moved up to 38.58 percent and Sharma said it is planning to take the same up to 45 percent by March 2020. Courtesy the fund infusion by LIC, the bank's overall capital adequacy moved up to 12.51 percent from the 6.22 percent in the quarter ago period.

The board recommended the bank to be renamed as LIC IDBI Bank or LIC Bank, Sharma said, adding it hopes the first option is given a go-ahead by the RBI. On the fate of its life insurance venture IDBI Federal Bank Life after the transfer of major ownership to LIC, Sharma said it has decided to sell the stake in the venture and the process of cost discovery is on right now.

He said the valuation may come lower than what was earlier offered because of the LIC's involvement in the deal. It will take up to seven months more to complete the sale, he said, adding that the process of selling stake in mutual fund has also been started as LIC runs an asset management company as well.

Apart from these two, the bank is also looking to raise up to Rs 1,200 crore by March by selling its stakes in companies like NSDL and NSE, he said. On the bankruptcy route chosen by the Anil Ambani-led Reliance Communications, Sharma said the bank hopes for a resolution in the 270 days, adding there is sufficient provisioning against the exposure.

Deputy managing director KP Nair said a fear of a heavy depletion in value has led banks to go for the strategic debt restructuring, rather than the NCLT alternative. The bank board has approved the sale of assets to dedicated asset reconstruction companies, but the same will be done only on a cash basis, Nair said, adding the RBI's newly introduced dispensation on classifying stressed MSME loans helped reduce NPAs by Rs 400 crore. The bank scrip closed 4.07 percent down at Rs 50.65 on the BSE, as against a 0.31 percent gain on the benchmark..