IDBI Bank Freezes Lend­ing & Branch Ex­pan­sion Plans

The fo­cus will now be on re­cov­er­ing funds from de­fault­ing bor­row­ers, says CEO Kishor Kharat

The Economic Times - - Smart -

Mum­bai: The gov­ern­ment-owned IDBI Bank has de­cided to freeze lend­ing and branch ex­pan­sion plans af­ter it posted a his­toric loss of ₹ 2,255 crore in the third quar­ter in an ef­fort to con­serve cap­i­tal, a buf­fer that banks keep as a cush­ion against loan de­faults. In­stead, it has de­cided to fo­cus on bad loan re­cov­er­ies which are al­most a fifth of its loan book.

“The cir­cum­stances are such that we are not in a po­si­tion to ex­pand or lend in a big way be­cause of con­strains to the cap­i­tal,” Kishor Kharat, CEO of IDBI Bank, told ET.

Se­nior of­fi­cials from the in­dus­try said the de­ci­sion for a ‘pause on busi­ness’ was taken af­ter three rounds of meet­ing between the top man­age­ment of IDBI Bank and the fi­nance min­istry in the past one month.

“Know­ing well that our cap­i­tal is de­plet­ing, we have started a war against de­fault­ing bor­row­ers. Our re­cov­ery and upgra­da­tion have been much higher than our peers to­day. We have cre­ated crack teams and ac­counts have been dis­trib­uted to in­di­vid­u­als across the bank for re­cov­ery,” said Kharat.

This de­vel­op­ment comes at a time when five IDBI Bank of­fi­cials, in­clud­ing the for­mer CMD Yo­gesh Agar­wal, were ar­rested by the Cen­tral Bureau of In­ves­ti­ga­tion for not fol­low­ing proper lend­ing pro­ce­dure while clear­ing loans to the now de­funct King­fisher Air­lines owned by Vi­jay Mallya. The ar­rest had shocked the bank­ing in­dus­try lead­ing to a freeze in lend­ing de­ci­sions on fears that their de­ci­sions could also be ques­tioned by the in­ves­tiga­tive author­i­ties in fu­ture.

In the last board meet­ing, the bank had de­cided to sell non-core as­sets val­ued at ₹ 6,000 crore, which it thought would help it to boost its cap­i­tal re­quire­ments.

Ac­cord­ing to a re­port by rat­ing com­pany Icra, the bank would fall short of the min­i­mum cap­i­tal re­quire­ment, also known as CET -1 (com­mon eq­uity teir -1), which is pegged at 6.75% for March 2017. Prior to ad­just­ing for losses, its CET-1 stood at 7.24%.

Icra has es­ti­mated that the bank will need a min­i­mum of ₹ 9,50010,000 crore to stay afloat. The rat­ing com­pany had down­graded the bonds of IDBI Bank by a notch to AA- on con­cerns that the bank may not be able to ad­here to min­i­mum cap­i­tal re­quire­ments as stip­u­lated by Basel III norms.

Kharat said that the bank will con­tinue to mo­bilise de­posits, and give re­tail and pri­or­ity sec­tor loans. “Right now, we will go slow on branch ex­pan­sion. The fo­cus is on bring­ing all branches to profit,” he said.

The re­cov­er­ies of bad loans in the n i n e months p e r i o d e n d i n g De­cem­ber 2016 stood at ₹ 636 crore as against ₹ 360 crore re­ported in full year of March 2016 while upgra­da­tion stood at ₹ 2,524 crore in nine months against ₹ 626 crore in full year of 2015-16. “We are tar­get­ing re­cov­er­ies of ₹ 1,200 crore and upgra­da­tion of ₹ 3,500 crore for the full year,” said Kharat.

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