IDBI Bank gains 5%, hits 52-week high on plan to sell stake in insurance JV

Shares of IDBI Bank were frozen in 5 per cent upper circuit at Rs 41.75 on the BSE on Monday after the bank said its board has approved a plan to offload 27 per cent stake in IDBI Federal Life Insurance at a combined value of Rs 595 crore.
IDBI Bank has 48 per cent stake in IDBI Federal Life Insurance, which started operations in 2008. Federal Bank and its Dutch partner Ageas Insurance International NV have 26 per cent stake, each.

“The board of directors, at its meeting held on Friday, June 26, 2020, has approved to sell IDBI Bank’s stake in IDBI Federal Life Insurance Company to the extent of 23 per cent to Ageas and 4 per cent to Federal Bank at a combined value of about Rs 595 crore,” IDBI Bank said in a regulatory filing.
The stake sale is subject to all regulatory approvals to be taken by all related parties and agreements which are yet to be finalised, it said.
The stock was trading at its fresh 52-week high, after surpassing its previous high of Rs 40.90 touched on November 25, 2019. Till 09:29 am, a combined around 29 million equity shares had changed hands and there were pending buy orders for 1.9 million shares on the NSE and BSE. In comparison, the S&P BSE was down 0.86 per cent at 34,870 levels.
In the last one month, the stock has zoomed 106 per cent from the level of Rs 20.30, against 7.5 per cent rise in the benchmark index in the same period. The bank had reported profit in the March quarter of FY20 (Q4FY20) after reporting losses for 13 straight quarters.
The lender posted a profit before tax (PBT) of Rs 289.66 crore for the fourth quarter ended March 2020 on a healthy rise in net interest income and a sharp drop in provisions and contingencies. The bank had posted a loss before tax of Rs 7,136 90 crore in quarter ended March 2019 (Q4FY19).
The asset quality of bank, which is under Prompt Corrective Action (PCA), showed an improvement in slippage during the fourth quarter. The gross non-performing Assets (GNPAs) stood at 27.53 per cent in Q4FY20 as against 27.47 per cent in Q4FY19. While the gross NPAs stood at 28.72 per cent at end of December 2019 (Q3FY20), net NPAs declined to 4.19 per cent in March 2020 from 10.11 per cent in March 2019.

IDBI Bank to meet RBI this week, seek removal of restrictions under PCA

LIC-owned IDBIBank, currently under prompt corrective action since May 2017, is expected to hold meeting with the RBI this week to seek removal of operational restrictions, according to sources.
The lender will make a presentation to the Reserve Bank of India on its improved financial position, the sources said, adding the management is hopeful of coming out of the PCA framework by the end of this month.

The RBI had placed IDBI Bank in May 2017, after it had breached the thresholds for capital adequacy, asset quality (net NPAs was over 13 per cent in March 2017), return on assets and the leverage ratio.
Since coming under the PAC, more than a third of its entire book became dud loans in Q2 of FY18, with the gross NPA ratio touching 32 per cent and the net NPAs at 17.30 per cent.
"The presentation to the RBI will be on the key financial numbers. On the capital front and in terms of net NPAs, we have been able to make progress," the sources told PTI.
A query sent to the bank did not elicit any response.
The PCA norms trigger if a bank's net NPA crosses 6 per cent or if CRAR (capital to risk weighted assets) is below the regulatory requirement of 10.88 per cent as of March 2019.
In the quarter to September 2019, its net NPA stood at 5.97 per cent and tier-1 capital and CRAR improved to 9.52 per cent and 11.98 per cent, respectively.
Capital infusion through recap bonds by the government in Q2, and also from LIC, and recovery from stressed accounts have also helped the bank in shoring up its capital position, another person familiar with the matter said.
In the second quarter of FY20, the bank received Rs 4,743 crore from LIC, which holds 51 per cent stake, and Rs 4,557 crore from the government which still owns 47.11 per cent.
Another positive is the recovery of close to Rs 3,000 crore from the NCLT resolution of Essar Steel and Ruchi Soya in the third quarter, further strengthening the capital position, the sources said.
The only area where the bank is still lagging is return on assets (RoA) which continues to remain negative for the fourth consecutive year. However, the bank is hoping some relaxation on the RoA front after the RBI eased the same for five other banks last year.
In September quarter of this fiscal, IDBI Bank had reported a net loss of Rs 3,459 crore, marginally better than Rs 3,602 crore in the year-ago period.
In FY19, RBI removed five banks -- Bank of India, Bank of Maharashtra, Oriental Bank of Commerce, Allahabad Bank and Corporation Bank -- from the PCA framework in two phases after capital support from government that resulted in improvement in their financial parameters.
Capital infusion helped these lenders meet requisite capital thresholds and reduce their net NPA levels to below 6 per cent.
The monetary authority as an effort to enhance its supervisory framework had introduced the PCA framework, based on structured early intervention mechanism, in December 2002.
The framework was subsequently reviewed by the RBI keeping in view the international best practices and recommendations of the working group of the Financial Stability and Development Council (FSDC) on resolution regimes for financial institutions and Financial Sector Legislative Reforms Commission.
The revised PCA framework was issued on April 13, 2017 and implemented on March 31, 2017.

Lead lender IDBI seeks deadline extension in Jaypee insolvency case

Debt-ridden Jaypee Infratech's lead lender IDBI Monday approached the National Company Law Tribunal (NCLT) seeking extension of insolvency proceedings beyond the May 6 deadline as the process is still underway to find a buyer for the Jaypee group's realty firm.
The bank has approached the Allahabad bench of the NCLT court to extend the Corporate Insolvency Resolution Process (CIRP) as the deadline expires on May 6, sources said.

The NCLT has posted the matter on May 6 for the next hearing.
Earlier, the NCLT had granted extension to the lenders and Interim Resolution Professional Anuj Jain to complete the CIRP.
On January 28, the NCLT had extended the period of the CIRP by another 90 days as 180 days mandated under the Insolvency and Bankruptcy Code (IBC) was coming to an end on February 5, 2019.
Under the IBC, a resolution process has to be completed under 180 days with a further extension of 90 days to 270 days.
And if the company fails to complete the CIRP within the mandated 270 days, then the company goes for liquidation.
According to sources, IDBI requested the tribunal to deduct the litigation period at several judicial forums, which includes the National Company Law Appellate Tribunal (NCLAT) and the Supreme Court.
IDBI's plea was supported by the representative of the home buyers, who have also got the status of financial creditors after amendments in the IBC.
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However, the promoters of Jaypee Infratech have opposed any move to extend the resolution period.
In 2017, the NCLT admitted the application by an IDBI Bank-led consortium seeking resolution of Jaypee Infratech.
In the first round of insolvency proceedings, the Rs 7,350 crore bid of Lakshdeep, part of Suraksha group, was rejected by lenders as it was found to be substantially lower than the company's net worth and assets.
In October 2018, the resolution professional started a fresh initiative to revive Jaypee Infratech on the NCLT's direction.
Jaypee Group's flagship firm Jaiprakash Associates Ltd (JAL) had submitted Rs 750 crore in the registry of the Supreme Court for the refund to buyers and the amount is lying with the NCLT. Jaypee Infratech is a subsidiary of JAL.
Lenders and home buyers would vote on April 30 on the bid of Suraksha Realty-led consortium, as it is only buyer left in the fray after bankers rejected the bid of state-owned NBCC.

2 bank unions to go on strike on Jan 8-9 over govt's anti-worker policy

Banking services are likely to be affected on January 8-9 as a section of PSU bank employees would go on a two-day strike in support of the nation-wide strike call given by 10 central trade unions against the government's alleged anti-worker policy.
The All India Bank Employees Association (AIBEA) and Bank Employees Federation of India have informed the Indian Banks' Association (IBA) of the two-day nationwide strike on January 8-9, 2019, IDBI Bank said in a filing to the BSE.
In a stock exchange filing, Allahabad Bank said the issues and demands are of industry level and strike call is also given at industry level.
"Therefore, if the strike takes place, the functioning of branches of the bank may be affected. The bank is taking all the necessary steps in terms of the existing guidelines for the smooth functioning of bank's branches/offices on the day of the strike(s), in the event the strike materialises," it said.
Public-sector Bank of Baroda said, "in the event of AlBEA and BEFI proceeding on strike on January 8-9, 2019, the functioning of bank's branches/offices in some of the zones may be affected".
Private sector Karur Vysya Bank said if the strike call materialises, "the workmen of our bank may take part in the proposed strike on the said date, in which occasion the normal working of the branches/offices of the Bank may get affected during the day".
Ten central trade unions -- INTUC, AITUC, HMS, CITU, AIUTUC, AICCTU, UTUC, TUCC, LPF and SEWA -- have also called for a nationwide general strike on January 8-9 against what they call "anti-people" policies of the Centre and have placed a charter of 12 demands before the central government.
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Earlier on December 26, 2018, nine bank unions or close to 1 million employees of various banks, including private lenders, had observed a one-day strike to protest against the proposed amalgamation of Vijaya Bank and Dena Bank with Bank of Baroda.

Govt likely to sell a significant portion of its stake in IDBI Bank to LIC

The government is considering a proposal to sell a significant portion of its stake in IDBI Bank to Life Insurance Corporation of India (LIC) and has approached the Insurance Regulatory and Development Authority of India (IRDAI) for clearance, according to sources.
The insurance regulator may take up the matter during its June 29 board meeting. Further, to make this proposal effective, IRDAI is likely to give LIC an exemption from breaching the maximum company-specific investment limit.

Currently, insurance companies are not allowed to own more than 15 per cent in a single company. However, the regulator would ask LIC to bring down its stake in IDBI Bank over a period of five-seven years. Sources said this would not be a challenge because IRDAI had allowed such exemptions in the past.
The LIC board has approved the proposal in principle. The bank will be asked to present fresh capital requirements.
Currently, LIC has over 10 per cent stake in six PSU banks, including IDBI Bank (see table). In another four, its stake ranges between 9.5 and 10 per cent.
The government held an 80.96 per cent stake in the beleaguered bank, and LIC 10.82 per cent, as on March 31, 2018.
The market was already abuzz with this news on Friday. IDBI Bank’s stock scaled an intra-day high of Rs 61 before closing 2 per cent higher at Rs 59 per share on the BSE. The buzz is that the government could sell as much as 40 per cent in the bank to the country's largest life insurance company. If this move fructifies, the state-owned life insurer may end up holding a majority stake in the ailing public sector bank. The buyout will cost LIC about Rs 100 billion, based on the Rs 248 billion market capitalisation of IDBI Bank, as on Friday, and assuming it acquires a 40 per cent equity stake from the government.
The government has for over three years been seeking strategic investors for the lender. International Finance Corporation (IFC) had conducted due diligence, but the matter did not move ahead.
Market experts, however, are not excited by the news, due to lack of any immediate benefits for the bank.
“The deal is not beneficial for either of the parties. Given the negative adjusted book value (net worth minus bad loans) of IDBI Bank, the deal is not good for LIC. Also, the bank is not going to get any capital infusion with this. Only government will get some amount,” said G Chokkalingam, founder and managing director, Equinomics Research & Advisory.
IDBI Bank is under the Reserve Bank of India’s (RBI's) prompt corrective action framework due to its weak credit profile. Faced with a huge provisioning bill for bad loans for 2017-18, it booked a net loss of Rs 82.37 billion, against a net loss of Rs 51.58 billion in 2016-17.
The bank’s gross non-performing assets (NPAs) ratio stood at 27.95 per cent (Rs 555.88 billion). As a share of total advances, this is the second-highest in the history of Indian banking. Earlier, IDBI Bank had reported gross NPAs of 30 per cent in the quarter ended December 2003.
The bank also reported divergence in asset classification to the tune of Rs 102.81 billion in 2016-17. Gross NPAs assessed by RBI stood at Rs 550.34 billion against the bank’s assessment of Rs 447.52 billion.
Govt likely to sell a significant portion of its stake in IDBI Bank to LIC IDBI Bank plans to put NPAs worth Rs 210 billion on the block in order to clean up its balance sheet. Some of these NPA accounts are from RBI’s first list of companies referred to the National Company Law Tribunal for insolvency resolution. The bank will only part with these stressed loans if it receives the expected value.
The net NPA ratio stood at 16.69 per cent (Rs 286.65 billion), up from 16.02 per cent (Rs 293.52 billion) in December 2017. Net NPAs were 13.21 per cent (Rs 252.05 billion) of advances at the end of March 2017. The bank has been engaged in sale of non-core assets, including real estate and stakes in the National Stock Exchange and SIDBI, to shore up its capital base. The profit from the sale of non-core assets stood at Rs 38.7 billion in 2017-18.
IDBI Bank also plans to sell 26-30 per cent stake in its mutual fund arm IDBI Asset Management Company to a strategic investor and intends to exit the life insurance venture, IDBI Federal Life Insurance Company. IDBI Capital Market Ltd, the investment banking arm, will reduce its 33 per cent stake in the AMC. The balance 67 per cent stake is held by IDBI Bank. The bank also hopes to conclude the sale of a 30 per cent stake in NSDL valued at around Rs 9 billion.
(With inputs by Shreepad S Aute)

BSE chairman among those named in CBI FIR for Rs 6-billion loan fraud

The CBI on Friday searched the residences of six former and current officials of IDBI Bank in connection with an alleged Rs 6 billion loan fraud case in which BSE Chairman S Ravi and the heads of two public sector banks have also been booked, officials said New Delhi.
The officials whose residences were searched today included Amita Narayan, the then CGM of the credit committee of the bank; R K Bansal, then member of the credit committee; S K Srinivasan, the then executive director; R S Vidyasagar, regional head ICG of IDBI; Bharat Pal Singh, then deputy managing director, and Medha Joshi, the head of the Risk unit.

In an FIR registered based on a complaint from the Central Vigilance Commission, the CBI has named 15 IDBI Bank officials who worked at senior levels between 2010 and 2014 when loans were sanctioned to the companies controlled by former Aircel promoter C Sivasankaran, they said.
Managing Director and CEO of Indian Bank Kishor Kharat, who was then the MD and CEO of IDBI Bank, his counterpart in Syndicate Bank Melwyn Rego (then deputy managing director in IDBI Bank), and then chairman-cum-managing director of IDBI Bank M S Raghavan have been named in the FIR.
Also named in the FIR is S Ravi, the Chairman of the Bombay Stock Exchange, who is also an independent director on the board of IDBI bank.
The sources said his residence was also searched during the agency's operation that started on Wednesday night. "He is also the Chairman of IDBI Bank's Audit Committee," according to his bio data on the website of the BSE.
The officials said the agency would soon question all the accused named in the FIR including Ravi, Rego, Kharat, and Raghavan.
"It was also alleged that the loans were granted to the companies by IDBI Bank at its highest decision-making level comprising the senior most management and even independent directors, disregarding the existing guidelines, instructions, and procedures," CBI spokesperson Abhishek Dayal said.
Subsequently, various conditions were relaxed or all together ignored. This led to an alleged loss of approximately Rs 6 billion to the bank and the public exchequer, he said.
The case pertains to loans of Rs 322 crore and Rs 523 crore given to the companies of Sivasankaran, who was at the centre of Aircel Maxis probe for alleging that then Telecom Minister Dayanidhi Maran had put pressure on him to sell his company to a Malaysian telecom tycoon, a case in which Maran brothers have been discharged by a special court.
The loans later turned non-performing assets or NPAs and the total outstanding on the companies is over Rs 600 crore which is a loss to the exchequer.