“We are sitting on around Rs 780 billion fully provided for bad loans, including those written off, and are likely to recover around 25%,” Rakesh Sharma Said in an interview in Mumbai. “This hidden asset is not reflected in our current valuation and will directly boost the bottom line.”
India is looking to sell at least 51% of the $5 billion bank, people familiar with the matter said in what would be the biggest sale of the government’s stake in a lender in decades.
Planned sale, part of Prime Minister Narendra ModiEfforts to raise Rs 650 billion in disinvestment proceeds in the year to March 31 test whether efforts to reform the lender will pay off for shareholders.
Just four years ago, IDBI had the highest bad-loan ratio among banks in the country. Sharma, 64, came out of retirement in 2018 for an improvement.
The 42-year-old banking veteran, Sharma has reduced the cost of funding, focused on recovery of bad loans and tightened the credit underwriting process. The bank returned to profit in 2020 after 13 consecutive quarters of losses.
“The underlying issue for many of the bank’s problems was the concentration risk associated with lending to large corporates,” he said. “Now the lending mix has shifted in favor of retail lending, and even among corporates, our loans are mostly to those that raters consider to be the highest grades.”
The bank was penalized in 2017 with several restrictions on lending after the central bank increased its bad-loan ratio and decreased its capital ratio. Life Insurance Corporation of India acquired 51% of the lender in 2019 to help the government bail out the firm. The RBI last year lifted restrictions on the bank, paving the way for its proposed sale.
Since 2018, the issuance of shares worth Rs 324 billion to raise capital for bad loans has impacted the bank’s valuation. This has left the lender’s shares with losses of over 20% over the past five years, compared to a 64% gain in the S&P BSE Bankex index, a 10-member gauge for banking stocks in the country.
Now, government officials and state supported
Ltd., which holds around 94% shares in IDBI Bank, are in talks about how much of their stake they plan to sell, people familiar with the matter said earlier this week. One of the people said they would try to formally measure buyer interest at the end of September.
While the government’s Department of Investment and Public Asset Management will drive the sale process, Sharma will present business prospects with the bidders. The bank’s digitisation, presence across the country through 1,886 branches, and strict cost controls are the points that Sharma plans to highlight to potential buyers.
Exchange filings show, the bank is seeking recovery of bad loans worth at least Rs 40 billion through March 31. It has different verticals to focus on recovery of bad debts to consumers and companies. The CEO continues to monitor recovery efforts on each soured loan amounting to over Rs 50 million, and the targeted recovery is expected within three years, he said.
“You will find a lot of potential for untapped profits in this bank, but not a single unpleasant surprise while going through the books will be my lift pitch to the bidders,” Sharma said.