IDBI privatisation back on govt agenda

Will rework strategy, indicates FinMin, concerned at lender’s worsening finances

Strategic sale of government stake in IDBI Bank is back in consideration, likely with a different strategy to divest to under 50 per cent.

“Stake sale is on the table. There are issues with banking operations and assets that need to be addressed. Though banks operations are weak, it has substantial real estate assets. We might have to rework the stake sale strategy,” a senior finance ministry official said.

Finance Minister Arun Jaitley had in his Budget speech for 2016-17 said, “The government is committed to reducing its stake in IDBI Bank to under 50 per cent.” The government holds more than 80 per cent in IDBI Bank directly and through public sector entities like Life Insurance Corporation.

According to reports, global lenders Asian Development Bank and International Finance Corporation, as well as other investors, have been in talks for the earlier proposed ~3,771crore stake sale via the qualified institutional placement route.

The lender’s net loss widened to ~2,255 crore in the December quarter. Gross non-performing assets (NPA) jumped to 15.2 per cent of gross advances, from 13.1 per cent at endSeptember. A year before, gross NPAs were 8.9 per cent. The capital adequacy ratio deteriorated by 35 basis points from the previous quarter, to 11.3 per cent. Tier-I capital was 7.24 per cent, lower than the regulatory requirement of 8.25 per cent by this March.

The government had earlier asked IDBI to reduce its risk-weighted assets. A section of officers and employees of IDBI Bank went on a strike last year, protesting against the government’s plan to reduce its stake to below 50 per cent. There are 17,500 employees.

The government plans to carry forward its recapitalisation plan for public sector banks to the next financial year. This means the ~3,000 crore not given in 2016-17 would be added to the ~10,000 crore announced in the Budget for capital infusion to these lenders for the next financial year. Of the ~25,000 crore announced for 2016-17, the government used around ~22,000 crore towards recapitalisation.

Beside the merger of State Bank of India and its six associate entities, the government is not considering any mergers of weaker banks with larger ones for now, until the bad debt situation eases, the official said.