IDBI Bank May Be Subjected To Strictest Corrective Action As Bad Loans Surge

IDBI Bank, on Thursday, reported a net loss of Rs 3,200 crore for the fourth quarter of financial year 2016-17, as bad loans surged. The level of non performing assets (NPAs) reported by the bank may lead to the lender being subjected to the strictest form of corrective action by the regulator.

IDBI Bank reported a net loss of Rs 3,199.76 crore in the March-ended quarter compared to a net loss of Rs 1,735.81 crore in the same quarter last year.

Bad loans surged to among the highest across the industry.

In absolute terms, gross NPAs rose to Rs 44,752 crore, up 27 percent on a quarter-on-quarter basis. Net NPA was up 20.3 percent sequentially to Rs 25,205.8 crore at the end of the fourth quarter.

As a ratio of net assets, net NPA at the end of the January-March period was at 13.21 percent, which puts the bank in the third category of the prompt corrective action (PCA) as detailed by the Reserve Bank of India (RBI).

Under the new PCA framework, banks with a net NPA ratio of 6-9 percent will fall under risk category one. Lenders with net NPAs between 9-12 percent of all loans fall into the second risk category, while those with a net NPA ratio above 12 percent fall into the third category.

On May 9, IDBI Bank had informed stock exchanges that the regulator had initiated PCA against the bank, without clarifying which category of risk threshold the bank had breached. Under category three, the regulator has the ability to restrict dividend payout, branch expansion, management compensation, director fee, as well as initiating discretionary action.

IDBI Bank has recently seen a switch in management. In March, Kishore Kharat, who had been the CEO since August 2015, was moved out to Indian Bank. MK Jain was then brought in to head IDBI Bank.

Provisions in the January-March quarter rose to Rs 6,209.6 crore from Rs 3,205.56 crore in the October-December quarter. On a year-on-year basis, provisions rose 39.5 percent. Provisions against bad loans in particular, during the three month period, rose to Rs 5,333 crore as compared with Rs 186 crore a year ago.

Loan loss provision coverage ratio as on 31 March 2017 stood at 54.96 percent.

Capital adequacy ratio as on 31 March was reported at 10.7 percent, as compared to 11.67 percent a year ago. The bank’s capital adequacy is very close to the 10.25 percent capital adequacy ratio that banks are required to maintain by 31 March 2017. By the end of the current financial year, banks will be required to have a capital adequacy ratio of 10.875 percent.

IDBI Bank’s net interest income, or the difference between interest earned on loans and that spent on deposits, rose to Rs 1,633.29 crore, up 14 percent year-on-year.

Other income was down 21 percent year-on-year at Rs 1,061.52 crore, owing to a drop in revenue from the bank’s treasury business. The bank reported negative revenue worth Rs 111.75 crore in the fourth quarter, compared to Rs 230 crore in the same period a year ago. IDBI Bank’s treasury department reported a loss worth Rs 216 crore, as compared with a Rs 116.6 crore profit last year.

Total deposits grew by just more than a percent to Rs 2,68,538 crore versus the same period last year, while total advances fell over 11 percent, over the same period last year.

Shares of IDBI Bank fell sharply after the earnings were reported. The stock was down more than 8 percent at close of trade.