IDBI Bank expects to return to profitability in the third or fourth quarter of FY2020. Besides whittling down its pile of bad loans, the bank, now a subsidiary of Life Insurance Corporation of India (LIC), wants to restart lending to corporates, albeit cautiously, once the Reserve Bank of India lifts restrictions under the prompt corrective action (PCA) framework. Rakesh Sharma, the Managing Director and Chief Executive Officer, in an interaction with BusinessLine, emphasised that barring the profitability/return on assets parameter, his bank could tick on all the other boxes relating to capital, net non-performing assets (NNPAs) and leverage to come out of the PCA framework.

Though LIC picked up a 51 per cent controlling stake in the bank in FY19 by investing ₹21,624 crore in a preferential issue of equity shares, Sharma said it is not involved in the day-to-day operations of the bank. More than 100 points of synergy have been identified between LIC and IDBI, including customer acquisition, collection of premium by the branches, and payment of premium by customers. Excerpts:

What is LIC’s role

in the bank?

LIC has supported us by infusing a good amount of capital and some synergies are emerging. Apart from that, the bank runs as it did earlier. LIC controls the bank through the board. It is not involved in the day-to-day operations. We are a professionally managed bank. The LIC Chairman is the Non-Executive Chairman of our bank and it has four nominee directors.

More than 100 synergy points have been worked out, including salary accounts of their staff members, mobilising agents’ accounts, collection of policy premiums, maintaining the accounts of their zonal offices, and providing them cash pick-up facilities. We have announced a concession in home loans to LIC employees, agents (10 basis points each), and policyholders (5 bps). Home loan demand from this segment is slowly picking up. Now that we are a subsidiary of LIC, besides selling its policies, we are extending the best services to the LIC ecosystem – employees (more than 1 lakh employees), agents (more than 11 lakh) and policyholders (about 29 crore). It is a win-win situation.

As a subsidiary of LIC, is there any conflict in your bank

and LIC Housing Finance being in the same

line of finance business?

LIC HF is a separate listed company. We have both been in the same line of business and continue to do so today. They have their clientele and we have ours.

Of course, some agents of LIC work as direct sales agents of LIC HF. But LIC has 11 lakh agents. So, even if 10 per cent of the agents work with us, the remaining 90 per centcan work with them.

There are so many housing finance companies and banks in the housing finance business. The size of the cake is large and there is opportunity for everyone. Of course, the RBI has given us five years’ time to take a decision on whether there should be any synergies worked out between LIC HF and our housing finance business. So, we have sufficient time.

Your gross NPAs at

29.43 per cent of gross advances is high. What

steps are you taking to

tackle this situation?

In the current scenario, you should look at net NPAs, which were at 17.30 per cent at September-end 2018. We have been able to bring it down to 5.97 per cent within one year through recoveries (which are continuing) and ageing provisions. Apart from that, we also made some accelerated provisioning. Recovery will take its own time.

As far as recoveries are concerned, IDBI, as a development financial institution, was doing only corporate advances. That is why 70 per cent of our advances were to the corporates. Whatever problems have occurred were mainly in the corporate sector. If you look at our total NPAs (technically written-off accounts, plus GNPAs), 73 per cent is either referred or admitted (to the National Company Law Tribunal).

Now, in the tribunal, which came into existence about three years back, there were very good recoveries initially, then certain issues (relating to interpretation and litigation) cropped up. And the government has also introduced various amendments to streamline the resolution process.

With clarity emerging on the role/rights of financial and operational creditors, most of the resolutions will pick up speed. Once that happens, we will be the biggest beneficiary. This will help us bring down GNPAs.

When will IDBI Bank

return to the black?

Our operating profit in every quarter last year was in the range of ₹800 to ₹900 crore. The operating profit in the fourth quarter was good (₹1,396 crore). We have improved the overall operations efficiency. So, as a result, the operating profit in the September quarter was ₹1,009 crore, against ₹850 crore in the September 2018 quarter. So, there has been a year-on-year (y-o-y) growth of 19 per cent and quarter-on-quarter (q-o-q) growth of 6 per cent.

By improving CASA (current account, savings account) deposits, which used to be at 38.13 per cent of the total deposits in September 2018 to 44.87 per cent now, our cost of deposits has come down. And we have brought operating expenses under control.

Similarly, we have reviewed our charges and improved overall efficiency. Then, of course, LIC synergies have also helped.

So, the first thing is to improve operating profit. We were earning operating profit every quarter. But the provisions were high because of ageing provisions and slippages. So, going forward, when our ageing provisions and slippages come down, the provisioning burden will reduce to that extent.

We are in the business of banking. Now, if we raise deposits but do not lend, then how do we earn profit? Of course, we have to be cautious, do better business and business with less risk. Now we are well prepared. So, with all these things, unless we increase our business, we will not be able to improve our income.

So, although we have been able to increase our operating profit to ₹1,000 crore, it will be difficult to go beyond that unless we improve our advances. So, that is why coming out of the PCA is very important. For the morale of our employees, for our reputation in the market and for customer confidence, it is really important that we come out of PCA.

Hopefully, by this quarter (Q3) or latest by next quarter (Q4), we should be back in the black. Thereafter, we should be able to maintain profitability.

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