Bank with worst India bad debt to sell RM6b of loans

MUMBAI • IDBI Bank Ltd, the lender with India’s worst bad-loan ratio, is seeking to curtail its soured debt by selling 100 billion rupees (RM5.71 billion) of stressed assets and stepping up efforts to recover dues from delinquent borrowers.

“We have set up a war room to focus on recovering the non-performing loans, while another team is keeping a check on loans showing early signs of stress,” CEO Rakesh Sharma said by phone. The lender wants to sell stressed loans “by end-June to quicken the pace of clean-up exercise”.

Burdened with the world’s worst bad-loan ratio, Indian lenders are stepping up efforts to recover delinquent debt after the Reserve Bank of India (RBI) announced tougher rules. The Mumbai-based lender’s turnaround efforts gathered pace after Life Insurance Corp of India (LIC), the nation’s largest insurer, bought a controlling stake from Prime Minister Narendra Modi’s government. The insurer has infused more than 210 billion rupees into IDBI to bolster its risk buffers and bring it out of the regulator’s emergency programme that restricts lending.

IDBI Bank will emerge from RBI’s prompt corrective action framework by September as the bad-loan ratio narrows and profits rise, Sharma said. Banks sanctioned by the regulator are restricted from lending and expanding their network, while they mend their balance sheets. IDBI’s gross bad-loan ratio stood at about 30% as of Dec 31, an exchange filing shows.

The lender is also planning to raise about 10 billion rupees by selling its holding in National Stock Exchange and National Stock Depository Ltd over the next month, the CEO said on Sunday. According to Sharma, the bank will also complete the sale of its insurance and mutual fund units in 2019.

Shares of IDBI Bank rose 4% at 11am in Mumbai trading yesterday. It was the best performer on the 12-stock Nifty PSU Bank Index, which gained 2.6%.

Sharma also shared his views on the Iran payments business and capital raising. Comments in the following question-and-answer (Q&A) have been edited and condensed:

Q: Will IDBI consider raising capital this year?

A: The bank will raise Tier I and Tier II capital in 2019. We will tap the public market to raise these funds and LIC will participate in that round to retain their majority stake in the bank. We would be coming into the market around September after our profit trajectory improves.

Q: Why is IDBI getting into the Iran oil payments business?

A: Indian refiners’ payments for Iranian oil shipments were earlier handled solely by Uco Bank. Now, the government has allowed IDBI Bank also to route these payments. We are working out the processes and by end-March, we should start processing these payments. As refiners are required to deposit any money destined for Iran without interest with us, the bank’s cost of funds and borrowings will come down. — Bloomberg