Hit by bad loans, IDBI Bank to go slow on corporate lending

Rising bad loans and the concomitant jump in provisions towards them have prompted IDBI Bank to tread extra cautiously in giving fresh big-ticket loans exceeding ₹100 crore to corporates. Simultaneously, the public sector bank has decided to further step up its thrust on retail loans.

These moves are aimed at going slow on growing assets that carry more risk-weight and conserving capital.

Assets such as corporate loans carry more risk weight, requiring more capital to make such loans. Retail loans, which are less risky, carry lower risk weight.

With bad loans going up by ₹5,111 crore to ₹35,254 crore in the quarter ended December 2017 and loan-loss provisions jumping 156 per cent quarter-on-quarter to ₹2,357 crore, the public sector bank is understood to have taken a conscious call to make more small loans than big-ticket loans.

Moody’s Investors Service, in a statement on Thursday, said the spike in net non-performing loan formation in the quarter ended December 2016 signals that asset quality pressure may persist longer than expected for the bank.

A senior IDBI Bank official said as long as the financial health of the bank does not improve, it will be more circumspect in giving fresh big-ticket loans exceeding ₹100 crore. However, there is currently no restriction on granting loans of more than ₹100 crore.

“If we grant a single loan of ₹100 crore, the risk of it turning sour is much higher in the current economic scenario. If we extend, say, ₹50 lakh loans each to 200 retail customers, the risks get spread over a larger number of accounts and the probability of these loans going bad at the same time are slim,” explained the official.

Loan loss provisioning impacted IDBI Bank’s bottomline in the third quarter, with the net loss widening to ₹2,255 crore from a net loss of ₹2,184 crore in the year-ago quarter.

The public sector bank has been trying to rebalance its loan book over the last couple years to improve the composition of the less risky retail loans such as home and auto loans in the overall portfolio.

Corporate loans accounted for 66 per cent of the total loan portfolio (of ₹2,32,552 crore) as at December-end 2016 as against 72 per cent of the total loan portfolio (of ₹1,97,303 crore) as at December-end 2014.

Retail loans accounted for 34 per cent of the total loan portfolio as at December-end 2016 as against 28 per cent in December-end 2014.