IDBI Bank’s shares hit a new 52-week low of ₹66.45 on the NSE on Monday and have now lost almost 30% since 13 March after media reports that the central government may scrap its plan to sell a majority stake in the lender.
IDBI Bank is classified as a private sector bank even though the government and state-owned Life Insurance Corp. of India (LIC) together hold a 94.7% stake in it. The government had initiated the process to sell 60.7%, including LIC’s, along with management control, but the bids were below the reserve price of about ₹110 per share, according to media reports.
The cancellation of the stake sale comes as a dampener to the government’s disinvestment efforts, although it may reinitiate the process at a more realistic valuation. Alternatively, the government could reduce its stake by 10-15% through an offer for sale before considering the majority stake sale. IDBI’s low free float of 5% makes the stock price prone to manipulation, limiting room for fair market valuation.
The bank’s financial performance has improved notably in recent years. Net profit rose 39% year-on-year to ₹7,570 crore in the nine months ended December, after a 44% compounded annual growth rate during FY23-25.
Reversal of provisions
Earnings got a boost with higher recovery from non-performing assets, leading to a reversal of provisions. However, operating profit fell 1%, weighed down by lower interest income and higher interest outgo.
A scramble for deposits, besides the cut in the repo rate meant pressure on the net interest margin, which fell 112 basis points (bps) to 3.63%. However, this is still above the 3% that the State Bank of India reported.
IDBI’s asset quality improved sharply: the gross non-performing assets (GNPA) ratio fell to 2.57% at the end of Q3 from 3.57% a year ago, and an unsustainable 22.4% at FY21-end.
The provisions coverage ratio is over 99%. This means it has made provisions for 99% for its bad debts and the recovery of more than 1% from these loans would add to earnings.
IDBI’s shares traded at 1.1 times the book value as of 31 December, lower than about 1.7 times for SBI. A re-initiation of the sale process by the government, besides GNPA trends, are variables that investors will watch closely.