Hit by NPAs, IDBI pins hopes on its revival strategy to come out of the red

In a bid to come out of the restrictive ‘prompt corrective action’, IDBI Bank has set in motion a host of turnaround measures, including reducing bad loans and maximising recoveries, focussing more on retail loans, cutting down on interest expenses by redeeming high-cost bonds, bringing down operating expenses by closing down unviable ATMs and branches, and monetising non-core assets.

The public sector bank was put on prompt corrective action (PCA) by the central bank in May 2017 due to high non-performing assets and negative return on assets. Under PCA, usually a bank’s branch expansion is restricted, and lending is narrowed to relatively less risky segments. The bank expects to come out of PCA in FY2020-21.

“We have already rolled out, some time in July, our turnaround strategy as to the key areas we will be focussing on. So, in the last nine months, we have been treading that path,” said Gurudeo M Yadwadkar, Deputy Managing Director.

Since one of the main pain points is NPA, the basic focus of the bank is to reduce NPAs and maximise recoveries. Gross NPAs touched almost a quarter of the bank’s gross advances as at December-end 2017.

“So, we created an NPA management group, which deals with all NPA accounts (irrespective of their size), on a pan-India basis. There are 200-odd officers in this group.

“Simultaneously, we have also created a credit-monitoring group to reduce fresh NPAs. With these measures, which have started yielding results, proper control has come on the entire stock of NPAs,” said Yadwadkar.

However, with the RBI’s February circular on revised framework for resolution of stressed assets replacing various extant instructions on the same, the IDBI Bank DMD felt that a good number of accounts, which were on standstill (in terms of asset quality) under the earlier schemes, would slip.

“So, there we don’t have any control. That was an unanticipated event actually,” he said.

Interest income

With large corporate accounts experiencing stress and interest income ceasing to accrue, the bank felt the need to counteract this by growing the retail book and allowing the corporate book to shrink.

“In the last nine months, the retail book [comprising housing loan, loan against property, education loan and automobile loans] grew 9.5 per cent, whereas the corporate book has really shrunk. This is helping us rebalance our loan portfolio.

“We consciously did not give fresh loans [to corporates] if utilisation is not happening. We didn’t reduce interest rate to promote [loan] utilisation,” said Yadwadkar.

Interest expenses

The bank is shedding high-cost bulk deposits and garnering relatively low-cost retail deposits in a bid to curtail interest expenses.

In this regard, the IDBI Bank DMD underscored that bulk deposits have come down from about ₹97,000 crore in March 2016 to about ₹72,000 crore in March 2018.

Further, the bank has decided to prematurely redeem (exercise call option) high-yielding ‘Additional Tier-I’ bonds aggregating ₹5,000 crore. This will lead to annual savings of about ₹500 crore in interest outgo.

In FY2019, senior bonds, carrying interest rate of about 11.15 per cent, aggregating ₹3,000 crore, will be redeemed. The bank will tap refinance institutions such as SIDBI, NABARD and National Housing Bank for low-cost funds.

In FY2018, IDBI Bank closed nine branches, which were making continuous losses for the last five years, and 120 ATMs.

Yadwadkar said loss-making branches would either be closed or merged or be converted into part-time banking outlets without inconveniencing customers.

In FY2019, the bank plans to close 100 more ATMs and about 22 loss-making branches.

Out-bound sales teams (OBSTs) are being rationalised without affecting productivity.

Monetising assets

Yadwadkar emphasised that the bank has realised a sizeable amount (₹3,500 crore) in FY2018 through the sale of its investments in non-core assets.

Among the investments that IDBI Bank monetised (sold) include its stake in Small Industries Development Bank of India (after selling 15 per cent stake, the bank is now left with less than 1 per cent stake); 5 per cent (out of its 7.5 per cent stake) in Clearing Corporation of India; entire 30 per cent stake in NSE e-Governance Infrastructure; 0.5 per cent in NSE (now left with 1 per cent stake); and a building in BKC to SEBI.