LIC acquisition of majority stake prompts reclassification.
Mumbai: IDBI Bank has been categorised as a private sector bank by the Reserve Bank of India (RBI) as state owned Life Insurance Corporation of India holds 51 per cent majority stake in the bank.
In a press release, the RBI said, "IDBI Bank has been categorised as a 'Private Sector Bank' for regulatory purposes by Reserve Bank of India with effect from January 21, 2019 consequent upon Life Insurance Corporation of India acquiring 51 per cent of the total paid-up equity share capital of the bank.
Meanwhile, rating agency ICRA assigned the Bank with 'negative' outlook and removed it from 'Rating watch with developing implications.'
The negative' outlook is driven by the pressure on the asset quality and credit provisioning, which will remain high in FY2020, given the elevated level of stressed assets that are yet to be provided for said ICRA. The rating agency estimates that the bank's overall equity capital requirement will be Rs 4,500-6,000 crore in FY2020 for reducing its net NPAs below 6 per cent while maintaining the capital conservation buffers (CCBs), the criteria for exiting the prompt corrective action (PCA) framework. IDBI Bank's management has guided towards equity capital infusion in H1 FY2020 as well as continued divestment of non-core assets to turn around.
The Bank has a high proportion of bad loans. Its gross GNPA and Net NPA ratios were 29.68 per cent and 14.01 per cent respectively, as on December 31, 2018, which will result in weak solvency (net NPA/net worth) even after factoring in the capital infusion of Rs 21,624 crore by LIC in FY2019.
"As per our estimates, after factoring in the capital infusion, the solvency stands at around 64.68 per cent, based on net NPAs as on December 31, 2018. The other stressed accounts that can be a source of potential stress, i.e. special mention accounts (SMA) 1 stood at Rs 13,970 crore as on December 31, 2018 (around 10.6 per cent of standard advances)," ICRA said.
Founded in 1964, IDBI Bank was one of the 21 public sector banks owned by the government. In January 2019, LIC acquired a 51 per cent stake in the bank by infusing capital of Rs 21,624 crore. As a result, the government's ownership diluted to 46.46 per cent as on January 24, 2019 from 85.96 per cent as on June 30, 2018.
As on December 31, 2018, the bank operated through 1,899 branches and 3,713 ATMs, and had a net worth of Rs 33,026 crore4 and an asset base of Rs 3,27,636 crore. The bank reported a net loss of Rs 8,238 crore in FY2018 on an asset base of Rs. 3.50 lakh crore as of March 2018 compared to a net loss of Rs 5,158 crore in FY2017 on an asset base of Rs 3.62 lakh crore as on March 31, 2017. It reported a net loss of Rs. 10,198 crore in 9M FY2019 compared to a net loss of Rs. 2,575 crore in 9M FY2018.