IDBI Bank open to both stake sale and as­set mon­e­ti­za­tion: CEO

The Pak Banker - - FRONT PAGE -

In­dia's state- owned IDBI Bank Ltd is open to sell mi­nor­ity stake to in­sti­tu­tional in­vestors or sell some of its non- core as­sets to raise funds up to Rs60 bil­lion dur­ing the cur­rent fi­nan­cial year, Kishor Pi­raji Kharat, Chief Ex­ec­u­tive Of­fi­cer and Man­ag­ing Di­rec­tor at IDBI Bank said in an in­ter­view.

"Dur­ing the cur­rent fi­nan­cial year we have a plan to raise Rs60 bil­lion in cap­i­tal. Out of that we have the share­hold­ers' ap­proval un­til Au­gust to raise Rs37.70 bil­lion. If we don't meet that dead­line we will go back to our share­hold­ers and ex­tend that per­mis­sion. We also have the op­tion to mon­e­tise our non- core as­sets to raise cap­i­tal," said Kharat.

Con­trary to the me­dia re­ports in In­dia, Kharat said the bank is in no hurry to sell stakes or as­sets to meet cap­i­tal re­quire­ments. "Right now there is no press­ing need for me to go to the cap­i­tal mar­ket to raise cap­i­tal. Cur­rently our cap­i­tal po­si­tion is 2 per­cent­age points above the Basel II re­quire­ments. Ad­di­tional cap­i­tal re­quire­ments are di­rectly linked to our busi­ness plan," he said. Ear­lier this year the gov­ern­ment has ini­ti­ated a process to sell a mi­nor­ity stake in IDBI Bank, which un­like other sta­te­owned banks, is gov­erned by a sep­a­rate leg­is­la­tion that al­lows the gov­ern­ment to re­duce its stake to be­low 51 per cent with­out re­quir­ing par­lia­ment ap­proval.

The process was kicked off in March af­ter Union fi­nance min­is­ter Arun Jait­ley's bud­get speech where he an­nounced the gov­ern­ment's in­ten­tion to bring down its stake in IDBI Bank from the cur­rent 91 per cent. As part of the plan, the gov­ern­ment is look­ing at sell­ing stake to one or more strate­gic in­vestors. But the bank is look­ing for in­vestors who can ac­cept its busi­ness model rooted in longer term de­vel­op­ment fi­nanc­ing.

"We are an­tic­i­pat­ing that there will be some mul­ti­lat­eral agency on- board soon. In any case those who come on board should be ideally in the busi­ness of long term de­vel­op­ment fi­nanc­ing," Kharat said.

The bank is not averse to sell­ing stake to long term in­sti­tu­tional in­vestors such as sovereign wealth funds or gov­ern­ment re­lated en­ti­ties as long as these in­vestors have a com­mit­ment fi­nance.

In­vestors, in­clud­ing In­ter­na­tional Fi­nance Corp, the in­vest­ment arm of the World Bank, and CDC Group, the de­vel­op­ment fi­nance in­sti­tu­tion of the UK gov­ern­ment, are un­der­stood to be in talks with the gov­ern­ment to buy stake in the bank.

Some of these global in­sti­tu­tions are al­ready do­ing their due dili­gence for po­ten­tial stake ac­qui­si­tion. Kharat said val­u­a­tion will be a key fac­tor in mak­ing a de­ci­sion on both stake sale and mon­eti­sa­tion of non- core as­sets.

IDBI Bank, at present, has a mar­ket cap­i­tal­i­sa­tion of just over Rs130 bil­lion. Sell­ing non- core as­sets is one way for the bank to shore up its cap­i­tal po­si­tion and strengthen its bal­ance sheet in the short- term.

IDBI Bank had raised Rs4.5 bil­lion by sell­ing some of its non- core hold­ings dur­ing the year ended 31 March. The bank has been able to mon­e­tise a part of its stake in the Na­tional Stock Ex­change and CARE Rat­ings Ltd so far.

As of March 31, 2016 IDBI Bank's non- core as­sets con­sists of share­hold­ings in com­pa­nies such as

to

de­vel­op­ment Na­tional Stock Ex­change (3 per cent), Small In­dus­tries De­vel­op­ment Bank of In­dia ( 19.2 per cent), Na­tional Se­cu­ri­ties De­pos­i­tory Ltd ( 30 per cent), As­set Re­con­struc­tion Com­pany ( 19.2 per cent) in ad­di­tion to un­spec­i­fied hold­ings in com­pa­nies such as Stock Hold­ing Corp of In­dia, Exim Bank and North East­ern De­vel­op­ment Fi­nance Cor­po­ra­tion.

Ear­lier this month the bank re­ported that its to­tal non per form­ing as­sets ( NPA) rose to 10.98 per cent of to­tal loans as com­pared to 8.94 per cent in the pre­vi­ous quar­ter. The bank re­ported a net loss of Rs17.36 bil­lion for the quar­ter ended 31 March as pro­vi­sions rose to ac­count for the in­crease in bad loans. For the full fis­cal 2015- 16, the bank reg­is­tered a net loss of Rs36.65 bil­lion as against a net profit of Rs8.73 bil­lion in 2014- 15.

"Our NPLs, if you look closely are good at the ground level. There are cash flow is­sues with most busi­nesses. Tech­ni­cally cash flow was not suf­fi­cient to make the pay­ment obli­ga­tions there­fore many of these en­ti­ties were de­fault­ing on their obli­ga­tions. The mo­ment cash flows im­prove these as­sets will no longer be NPLs," said Kharat.

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