IDBI Bank privatisation efforts get a fresh push
RAISING THE BAR Bank will get a professional board once sale goes through NEW DELHI/MUMBAI:
The government is determined to deliver on its budget promise on privatization of IDBI Bank. And once privatized, the bank will be run by a professionally-run board.
Accordingly the government is pursuing several options, persons familiar with the development disclosed saying that discussions were at an advanced stage.
The proposals also figured in the meeting of the senior bankers with the government held last Friday in Mumbai.
If the government delivers on its intent, it will be sending out a strong message about its commitment to make Indian banks globally competitive.
A number of options on privatisation are on the table. One of the options being discussed is selling the government’s stake to other institutions like Life Insurance Corporation of India, the person added.
To be sure, LIC’s stake sale purchase will be constrained by regulatory restrictions that stipulate it cannot hold more than 15% stake in one entity. LIC had a 10.82% stake in IDBI Bank as of March end, as per data available on the Bombay stock exchange.
Mint reported on 4 June that the government was also exploring stake sale in IDBI Bank to a clutch of private equity investors as one of the options to bring down its stake to less than 50%.
IDBI Bank is not governed by the bank nationalization act making it easier for the government to privatize the bank without making it a long-drawn process.
The Indian government’s stake in IDBI Bank increased to 85.96% from 80.96% after a preferential issue of shares by the bank to the government last month.
IDBI Bank has also convened its AGM on 13 August with issue of capital through various alternative modes including qualified institutional placement as one of the special items on the agenda.
The bank’s shareholders also agreed to increase the bank’s authorized capital to ₹8,000 crore from ₹4,500 crore, the bank informed BSE last month. The increase in authorized capital could facilitate the sale of a stake of 51% or more, in the form of a preferential issue to investors.
The government has been trying to privatize IDBI Bank for the last couple of years albeit unsuccessfully in the wake of mounting losses and rising bad debts. In the year ended March 31, 2018, IDBI Bank posted a net loss of ₹ 8,237.92 crore, as against a net losses of ₹5,158 crore in fiscal 2017 and more than double the net losses in fiscal 2016 at ₹3,665 crore. The bank’s gross NPAs almost doubled to ₹55,588.26 crore during fiscal 2018, which is 32.36% of the bank’s gross advances during the year.
IDBI bank recently also became headless after its managing director and chief executive officer, MK Jain was appointed as the deputy governor of the Reserve Bank of India.
The government has also been pushing for consolidation of state run banks to bring in synergies, reduce costs and create some big globally competitive banks.
However, except for the merger of the five associate banks and Bharatiya Mahila Bank last year with State bank of India, consolidation has been a nonstarter. The government is weighing merging two to three banks with Bank of Baroda, Mint had reported on June 4.
The push for consolidation comes at a time the state run banks are reporting massive losses due to rising levels of nonperforming assets which threatens to wipe off the entire capital infusion by the government into these ailing banks.