Finally, it looks like the sale of IDBI Bank, the only bank of its kind (neither considered ‘public sector’ or ‘new generation private sector’) will take off, wherein LIC holds 49.24 per cent, the Centre 45.48 per cent and the balance 5.28 per cent is spread among 5,60,914 public shareholders

The Centre will come out with an expression of interest (EoI) for the sale of the bank by the March-end, as indicated by Tuhin Kanta Pandey, Secretary, Department of Investment and Public Asset Management (DIPAM). In order to avoid any further delay or dispute or controversy, DIPAM had detailed consultations with the Reserve Bank to work out the process

Elaborating on this development, Mr Pandey said, “There are licences involved and we do not want any uncertainty after the financial bids are placed. We plan to sell LIC’s and the government’s stake together and LIC’s management control in the bank will be passed on to the successful bidder but the entire stake may not go.”

During the nine months ended December 2021, the bank has reported a net total income of Rs 10,604 crore (PY Rs 87,29 crore), operating profit of Rs 5,982 crore (PY Rs 4,219 crore) and net profit of Rs 1,749 crore (PY Rs 847 crore). The net interest income remained at Rs 6,742 crore (PY Rs 5,284 crore) with an improved net interest margin (NIM) of 3.65% against 2.79% in the previous year during the same period.

CASA STRENGTH

CASA deposits are a big strength of the bank, having increased to Rs 1,21,738 crore as on December 2021 against Rs 1,09,880 in the previous year, and constitute 54.69% of the bank’s total deposits. Likewise, the bank is in a comfort zone in its net NPAs at 1.70% and CRAR at 16.75%. The provision coverage ratio (PCR) at 97.10%, cost of funds at 3.79% and cost of deposits at 3.50% are also equally favourable.

The bank has realigned the composition of its advance portfolio, which is now in a ratio of 37:63 for corporate and retail lending. The home loan portfolio of Rs 45,617 crore represents 74% of the total retail portfolio of Rs 61,412 crore. The bank is committed towards its strategic positioning as a retail-oriented bank with a focus on growing the share of retail and small and mediumsized enterprises

It is worthwhile mentioning that together with its December 2021 Q3 financial results, the bank has reported gross NPAs of Rs 34,405 crore, constituting 20.56% of its total advances. Of this, the bank has already made a provision of Rs 32,116 crore, which amounts to 93%. It is learnt that the bank has already identified Rs. 11,000 croreplus loans that it could sell to National Asset Reconstruction Company Ltd, the newly formed bank wherein IDBI Bank is also a partner. However, in a recent development, the bank has decided to sell its entire holding of 19.18% in ARCL.

KPMG is the transaction advisor for the IDBI strategic sale. It is understood that while conveying feedback from potential investors to the government, they have indicated that strategic investors would want the government to transfer some of the lender’s NPAs of over Rs 34,000 crore to the Bad Bank. Another very important point they have asked for is to allow investors to form a consortium to bid for the bank.

PAN-INDIA REACH

The bank has 1,886 branches, 1,407 centres, 3,394 ATMs and 58 e-Lounges. Geographically, the branches are spread in metros (22.61%), urban areas (24.63%), semi-urban areas (31.05%) and rural areas (21.71%). Its subsidiaries include IDBI Capital Market & Securities (100%), IDBI Fintech (100%), IDBI MF Trustee Co. Ltd (100%), IDBI Asset Management (66.67%) and IDBI Trustee Services (54.70%).

Interestingly, IDBI Bank is the single largest shareholder in National Securities Depository Ltd (NSDL), holding 26.10% of its equity capital of Rs 40 crore. NSDL is not a publicly listed company. However, currently the peer group company CDSL’s share is being quoted at Rs 1,519. Even after considering a discount of 25% on CDSL’s current price, the NSDL share can be valued at Rs 1,140 per piece on a conservative basis, which could fetch a healthy valuation of Rs 1,190 crore to the bank on its holding of 1.044 crore shares of NSDL.

PLUS POINTS

The established goodwill of the bank, a fleet of branches with a strong pan-India footprint, highly technology-savvy, a bouquet of important products, improved assets quality, and a conducive CASA deposits base supported by an almost clean balance sheet should generate adequate interest from different corners for the acquisition of this ‘ready-to-move- andgrow bank’.

Importantly, the government has not moved further in its disinvestment plan of the strategic sale of two public sector banks to the private sector, which the Finance Minister had announced in her budget speech in 2021. Moreover, in the midst of strong opposition by trade unions, even potential banks’ names have not been declared as yet. Hence, it is rather difficult to predict the fate of this privatisation proposal at this juncture.

In view of this, a potential strategic acquirer would obviously show interest in bidding for IDBI Bank, whose disinvestment looks more certain in the foreseeable future. The bank could accelerate its pace of growth under the new private sector management, especially when the country is aspiring to become a $ 5 trillion economy by 2025 with an immense focus on Digital India and Atmanirbhar Bharat.

Banking sources reveal that the Blackstone group, Canadian billionaire Prem Watsa’s Fairfax Financial Holdings, the Avenue Capital group, InCred-KKR and two Indian private sector banks, in addition to one large-sized NBFC, have shown interest in acquiring IDBI Bank.