Is IDBI Bank Preparing To Sell The Family Silver?

IDBI Bank board approves sale of non-core assets without specifying the assets it intends to sell.

A man speaks on the phone in front of an IDBI Bank branch. (Photograph: Dhiraj Singh/Bloomberg)
A man speaks on the phone in front of an IDBI Bank branch. (Photograph: Dhiraj Singh/Bloomberg)

The board of directors of IDBI Bank on Tuesday approved the sale of some of the bank’s non-core assets, according to a notification sent by the bank to the stock exchanges. The bank didn’t specify what assets it intends to sell and over what period of time.

The enabling provision comes at a time when mounting bad loans have put significant pressure on the bank’s balance sheet. For the December 2016 ended quarter, the bank posted a net loss of Rs 2,254 crore during the quarter, taking its cumulative loss for the nine months ending December 31 to Rs 1,958 crore. The bank has gross non performing assets of 15.16 percent, among the highest in the industry.

One comfort for the bank has been its legacy of investing in public institutions developed to serve the economy. These investments are often referred to as the ‘family silver’ within the bank. This pool of investments largely comprises of shares held in institutions such as the National Securities Depository Limited, which were started with the support of a number of banks. Now that these institutions have matured, banks can offload their shareholding to other investors.

What Assets Could Be Sold?

According to the bank’s annual report for the year 2015-16, its total investment in shares at the end of March 2016 was Rs 3,049.46 crore rupees. IDBI Bank also had investments worth Rs 702.04 crore in joint ventures, associates, and subsidiaries.

The value of these investments is on a book value basis and it is likely that the current market value is significantly higher.

IDBI Bank has one joint venture, IDBI Federal Life Insurance, in which it holds a 48 percent stake. The bank also has five subsidiaries, including four wholly-owned arms–IDBI Capital Market Services, IDBI Asset Management, IDBI Intech, IDBI MF Trustee Co–and IDBI Trusteeship Services, in which it holds 54.7 percent.

Apart from this, the bank has a 30 percent stake in National Securities Depository Ltd, 30 percent in NSDL E-Governance Infrastructure, and 27.93 percent in Biotech Consortium India.

As on December 31, IDBI Bank also held a 1.5 percent stake in the National Stock Exchange, which has filed its draft red herring prospectus with the Securities and Exchange Board of India for an imminent initial public offering. In September 2016, IDBI Bank had sold 1.5 percent in the exchange.

Is IDBI Bank Preparing To Sell The Family Silver?
Is IDBI Bank Preparing To Sell The Family Silver?

Clean-Up Before Stake Sale?

The government first announced its intention to bring its stake in IDBI Bank below 50 percent in the Union Budget in 2016. Its intention was to transform the bank along the lines of Axis Bank.

In September, Bloomberg, quoting unnamed sources, reported that IDBI Bank had appointed Citigroup Inc., Credit Suisse Group AG, Deutsche Bank AG, HSBC Holdings Plc, JPMorgan Chase & Co., SBI Capital Markets Ltd. and IDBI Capital Market Services Ltd. as arrangers to manage a share sale of Rs 6,000 crore.

This issue, however, did not take off, and the government’s stake at the end of December has remained at just under 74 percent.

On Monday, a senior finance ministry official said that the government’s plan to sell stake in IDBI Bank was still on the cards. The official, however, said that asset quality issues and operational issues would need to first be resolved.

“If they do manage to raise funds via non-core asset sales and clean up their book, they would be in a better position to attract investors,” Siddharth Purohit, Fundamental Analyst, Angel Broking.

Shares of IDBI Bank ended the session up 0.7 percent at Rs 82.95 on the BSE.