New Delhi: IDBI Bank Ltd’s board has approved a plan to sell some of its non-core assets, the state-owned lender told stock exchanges on Tuesday.
The bank is in need of a massive capital boost as it reported a gross bad loan ratio of 15.16% at the end of December.
The talk of IDBI Bank divesting its non-core assets has been on since the management spoke about it first in May 2016. At the time, Kishor Kharat, managing director and chief executive officer of the bank, had said that the bank aimed to raise Rs19,000-20,000 crore by March 2019, of which about Rs6,500 crore would come from sale of non-core assets.
According to the bank’s annual report for the year 2015-16, IDBI Bank holds a stake in National Securities Depository Ltd (NSDL), NSDL e-governance Infrastructure Ltd, Biotech Consortium India Ltd, North Eastern Development Finance Corp. Ltd and Pondicherry Industrial Promotion Development and Investment Corp. Ltd.
Apart from these, the bank also holds a stake in subsidiaries like IDBI Asset Management Ltd, IDBI Federal Life Insurance, IDBI Capital Markets Ltd and IDBI Intech Ltd among others.
On 24 May 2016, Mint had reported that IDBI Bank had appointed PricewaterhouseCoopers Pvt. Ltd to help boost valuations ahead of the sales.
The government, in its 2016-17 budget announcements, had said that it was looking at bringing down its stake in IDBI Bank below 50%. However, there was no follow through. In the absence of a fresh source of capital, the sale of non-core assets is the only way the bank can deal with its capital shortage.
At the end of December, IDBI Bank’s capital adequacy ratio was 11.29% compared to the 10.25% mandatory requirement under Basel III by 31 March, 2017.
“The bank has been trying various things to get its capital situation in order, but it appears as though the divestment of government stake is the only real solution here. Unless the government decides to reduce its stake in the bank, improvement in IDBI Bank’s capital position looks difficult,” said Abizer Diwanji, partner and head-financial services at EY.