IDBI does not see Covid derailing turnaround, aims to exit PCA soon: CEO

LIC-backed IDBI Bank, an overnight multibagger after reporting its first set of profits in more than three years, is quickly climbing the valuation leader-board, and is now within kissing distance of both Bandhan Bank and Yes Bank. It now expects to soon rid itself of the curbs imposed by the prompt corrective action (PCA) framework after meeting almost all revival parameters set by the central bank. The lender’s CEO, Rakesh Sharma, tells Saloni Shukla that he does not expect Covid-related asset quality pressures to derail the bank’s turnaround plans. Edited excerpts:

How has the turnaround journey been for IDBI?
When I came to the bank, there were several issues — the biggest being asset quality. The bank was incurring losses and was under PCA. We were also facing staff-related issues, with some employees resisting LIC holding 51% in the bank ... I started holding town hall meetings and allayed their concerns. We also took a decision to realign the business on both the asset and liability sides. We worked very hard to strengthen our savings and current deposits, we focused on diversifying our book toward retail. The bank also had concentration risks where the level of advances was disproportionately skewed; we have made a conscious effort to bring that down.

What is the timeline on exiting the PCA framework?

Let’s look at this in detail. In 2017-18, our slippages were Rs 35,600 crore and now they’re Rs 8,300 crore. This year, we have had recoveries and upgrades of Rs 9,000 crore. Our capital adequacy is 13.31%, tier 1 is also robust, net NPA is 4.19%, only RoA was remaining and now in the March quarter, we have met that by coming back in black. We have to see the Covid impact, but we will make all efforts to keep posting profits.

Do you see Covid derailing plans?
No, I don’t see any derailment; we are in a period of uncertainty and I can’t claim this will not have any impact on us. I think the situation will be clear by September. We have to face what has been brought upon us, we are looking to take advantage of the Covid relief packages introduced by the government and the RBI. We have the highest provision coverage ratio at 93.74% in the industry and that will hold us in good stead during tough times.

How much of your book is under the repayment moratorium?
In our structured retail segment, 68% borrowers have availed the moratorium; in agriculture and MSME, more than 90% borrowers and in the corporate segment, almost 60% borrowers have availed moratorium. What we have seen is that most borrowers have steady cash flows, but to take care of the unforeseen circumstances, they are making use of it. I feel as we gradually open up the cash flows will start improving and after August, I do not see a huge impact.

A lot of your peer banks have conducted stress tests building worst case scenarios. Have you carried out a similar exercise?
Our risk management practices have been quite robust. We have built up worst case scenarios and what would be our capital requirements. Internally, we are also building plans on how we will tackle these scenarios. I can assure you that these numbers are not so stark that we won’t be able to deal with them.

What is your assessment on bad loan recoveries?
NCLT may be affected for some time but we will go about recovering from our sources. We have set a target of at least Rs 6,000 crore through one-time settlements, bad loan sales and NCLT route.

What is the plan in non-core asset sales for this year?
Last year, we sold non-core assets worth Rs 330 crore. This year, we are looking to sell some shares that we hold in NSE. We could also recover nearly Rs 215 crore from the sale of IDBI Mutual Fund; we have zeroed in on the buyer and are awaiting approvals from Sebi and RBI. Likewise, we are in an advanced stage to sell stake in IDBI Federal Insurance; we were earlier expecting to do so by June, but it may take some time now. But, I am hopeful that by the September quarter, we will be able to close both the deals.