Spotlight on Jain as IDBI Bank plans turnaround

Industry watchers were surprised when the Centre, in March, decided to shuffle the incumbent chiefs at two state-run lenders — IDBI Bank and Indian Bank.

Mahesh Kumar Jain, who was then MD & CEO of Chennai-based Indian Bank, was moved to IDBI Bank replacing Kishor Kharat, the then CEO. Mr. Kharat in turn was moved to Chennai in place of Mr. Jain.

While no official reason was cited for the decision to swap the CEOs, (both of them were appointed by the NDA government) the Centre’s intention to revive the loss-making IDBI Bank was evident. Finance Minster Arun Jaitley in his budget speech of 2016-17 had said the government would reduce its stake in the lender to below 50%.

Following the announcement, several overseas institutions like the International Finance Corporation (IFC), GIC of Singapore, CDC of England started due diligence to pick up a substantial stake in the bank. The Union government owns 74% stake in the state-run lender.

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However, the divestment initiative took a back seat after IDBI Bank’s financial position deteriorated as bad loans surged. The bank’s loss in FY17 widened to ₹5,158 crore from ₹3,665 crore in FY16 as provisioning surged almost threefold to ₹9,379 crore.

Soaring NPAs

Gross non-performing assets rose by a whopping ₹20,000 crore in one year to ₹44,752 crore as on March 31. The gross NPA ratio was 21.25% and net NPA ratio was at 13.21% as on March 31. Return on asset (RoA) was negative for two consecutive years.

As a result of worsening financial health, the Reserve Bank of India (RBI), put certain restrictions on IDBI Bank, known as prompt corrective action in banking parlance. And now, major rating agencies like CRISIL and ICRA have downgraded the lender following erosion of capital due to losses.

Mr. Jain has his task cut out. That is to turn around the lender in quick time. And he has hit the ground running.

“We are looking at all avenues to improve our capital position and bring the bank on the recovery track,” Mr. Jain said in a statement. “We will look at aggressive recovery and cost cutting measures and plan on churning our corporate book and risk-weighted assets which should also ease the pressure on capital.”

According to bank officials, he has taken stock of the situation in the last one of month and has identified the strengths. “There are many inherent strengths of the bank like rich human resources,” said an official, on the condition of anonymity.

Credit appraisal is another area where the bank has an edge over others due of its legacy of having been a development finance institution.

Brand value

Perhaps the biggest strength of IDBI Bank is its brand value which has helped the lender expand its retail reach. “The bank is diversifying its portfolio with more focus on retail,” said another official.

Diversification, which is essentially moving away from corporate lending, could be one key area that could help Mr. Jain in his efforts to turn the bank around.

The bank’s exposure to the corporate sector is more than 60%. Of the exposure, 19.55% is to infrastructure sectors like transport, energy and communication — the industries that are facing the maximum stress.

Apart from revival of economic growth, which could help lower the stress of companies, IDBI Bank is focusing on resolution and recovery. The lender is pinning hope that the resolution mechanism following amendment of the Banking Regulation Act that gives more power to RBI for resolving stress, gains momentum. For recovery, the bank has created a separate cell under an executive director to closely monitor follow-up efforts.

Monetise assets

The bank is also looking to monetise some of its non-core assets to improve its capital position. It has made a list of all such assets and formed a committee to decide which of those can be put on the block at the earliest. While the turnaround process could be painfully longer, maybe two years, signs of improvement should be visible in the next 12-15 months, officials said.

IDBI officials said that Mr. Jain could take a leaf out of his former organisation, Indian Bank, which was also going through a crisis some 20 years ago, with high NPAs, before it turned around.