bank share IDBI Bank

IDBI Bank - Fresh capital infuse to take it to a new high (updated - 16 June 2010)
IDBI Bank has recently approved a proposal for the increase in authorised share capital of the bank from Rs 1,250 crore to Rs 2,000 crore. This will enable the bank to raise additional capital and thus increase its capital adequacy ratio (CAR), which is currently below par.

IDBI Bank is 52.7% owned by the Government of India and the proposal is a precursor to capital infusion by its largest shareholder. According to the existing policy, the government holding in public sector banks can’t fall below 51%.

This has virtually barred IDBI Bank from raising additional capital and was thus hurting its growth prospects. Banking is a capital-intensive business and banks need to continually raise fresh capital to support their over-growing balance sheets.

The government’s announcement to infuse a fresh capital of Rs 3,192 crore will enable the bank to scale up its lending operations and participate in the India growth story.

Most importantly, the fund infusion will provide flexibility to bank managements to raise capital from the open market without running the risk of the government holding falling below 51%. The move will raise the government’s stake to nearly 65%, based on its current stock price. This will open the possibility for IDBI Bank to raise further capital by issuing fresh equity.

The bank had a CAR of 11.3% at the end of financial year 2010. Though this is well above the 9% benchmark set by the banking regulator, it’s still below that of its peers - Punjab National Bank at 13.5%, State Bank of India at 14.3%, Bank of Baroda at 14.4%. As per the management, the proposed increase in share capital will help the bank improve its CAR to 13%.

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The bank has been growing at a very high rate, of late. Its loan book grew at 34% year-on-year in FY10. At this rate, it grew twice as fast as industry’s pace.

Now that the bank has sufficient capital base, which is also much higher than regulatory norms, it can grow even faster. The management indicated that the bank is targeting a 25% growth in advances in the current financial year.

The bank was converted from a development financial institution (DFI) to a commercial bank in October 2004. The process is far from complete and the bank is still working on getting its business model closer to a commercial bank. It plans to continue doing so for the next couple of years.

On the liability side, the share of current account and savings account (CASA) stood at 14.6% in total deposits in FY10. Most of the top Indian banks have a CASA of 30% or higher. So, IDBI Bank still has a lot of catching up to do. To strengthen the base of low-cost CASA deposits, the bank is going aggressive on branch expansion. It plans to add another 300 branches to its existing network of 720 branches.

On the assets side, the bank is focusing on infrastructure, which has traditionally been its forte. The management indicated that it won’t be as aggressive on the retail side as it is on the corporate side of business.

With fresh infusion of capital and improvement in the business model, IDBI Bank is moving closer to top state-owned banks. It is interesting to note that the bank is doing all of this, while growing at an aggressive pace

IDBI Bank Ltd (updated - 28 July 2010)
Its getting a tad tight for India’s fifth-largest commercial bank, IDBI. While major banks have managed agrowth of more than three per cent in their net interest margins (NIM), IDBI recorded one of the lowest NIM in the June quarter, at around 1.6 per cent. Though, this is 84-basis-point more than that recorded in the same quarter of the previous year.

The June quarter saw some traction in the core fees, which grew 50 per cent, but the current account and savings account ratio was down 160 basis points sequentially to around 13 per cent, which is again the lowest amongst peers. Total income grew 170 per cent year-onyear, while net earnings rose 45 per cent to around Rs 25,000 crore. However, these were lower than estimates and largely helped by DTA credit that resulted in lower tax rate.

Asset quality has been a major cause for concern. Nonperforming loans (NPL) increased 24 per cent sequentially during the quarter, while gross non-performing assets came in at around 1.9 per cent (1.2 per cent at the net level). According to analysts at Bank of America-Merrill Lynch, the reported cover was 39 per cent (around 74 per cent including technical write-offs). Bulk of the slippage came from restructured loans, wherein two large accounts of over Rs 100 crore each slipped, reckon analysts. Total restructured book stood at around seven per cent. Total distressed loans (NPLs and restructured) formed nine per cent of the loan book.

The bank’s Tier-I capital is at 6.7 per cent. The preference capital infusion by the government will take it to eight per cent. This will give the bank some headroom for further capital infusion. The cleaning up of books and the economic momentum will enhance the bank’s operations, as it plans to expand its base in the current financial year. Till then, the pressure is expected to persist.
source - business standard