IDBI Bank Freezes Lending & Branch Expansion Plans
The focus will now be on recovering funds from defaulting borrowers, says CEO Kishor Kharat
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.