IDBI Bank's bad-loan legacy: Kingfisher, ABG Shipyard exposures highlight lending risks

IDBI Bank's exposure to troubled corporate borrowers, including Kingfisher Airlines, ABG Shipyard, Videocon Group and Winsome Diamonds, highlights the challenges associated with corporate lending, credit appraisal and recovery of stressed loans during the bank's earlier years.

According to a Finance Ministry document on IDBI Bank's strategic restructuring, the bank approved a loan of ₹860.92 crore to Kingfisher Airlines in 2009 despite the airline having a negative net worth and the approval being in breach of the bank's own loan policy. Of this amount, ₹807.82 crore remained unrecovered, the document said.

IDBI Bank's exposure to ABG Shipyard reached approximately ₹3,639 crore. Most consortium disbursements took place between 2005 and 2012, while the account was classified as a non-performing asset (NPA) in November 2013.

The bank also reported defaults of approximately ₹114.79 crore involving Winsome Diamonds beginning in April 2013, amid a wider banking-sector default. In the case of the Videocon Group, IDBI Bank's claims in subsequent insolvency proceedings reached approximately ₹9,903 crore, according to the document.

Another significant development during this period was the 2006 merger of United Western Bank with IDBI under an RBI-led resolution. United Western Bank was financially distressed, with negative net worth and mounting losses.

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These cases provide a backdrop to the deterioration in IDBI Bank's asset quality and the challenges involved in recovering loans from stressed corporate borrowers. They also underline the importance of credit appraisal, adherence to lending policies and assessing borrower risk when banks extend large loans to companies.

From bad loans to balance-sheet recovery

IDBI Bank's financial position has improved significantly since its period of stress. The document records a decline in gross NPAs from 31.78% in September 2018 to 2.32% in March 2026. Net NPAs fell from 17.30% to 0.15% over the same period.

The bank's capital adequacy ratio also recovered from 6.22% in 2018 to 26.65% in March 2026. After facing restrictions under the Reserve Bank of India's Prompt Corrective Action framework, IDBI Bank reported a record net profit of ₹9,513 crore in FY26.

The document attributes the bank's turnaround to the subsequent repair of its balance sheet, following government capital infusion of around ₹25,000 crore between 2010 and 2020.

The improvement in asset quality marks a significant shift from the bank's earlier financial stress. As the proposed strategic restructuring progresses, the turnaround raises questions about how the bank can sustain stronger underwriting standards, contain future bad loans and maintain asset quality while pursuing further business growth.

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