The banking industry, of late, has been seeing the appointment of new chief executive officers (CEOs) in most banks. Be it foreign bank Citi or private banks such as ICICI Bank, Axis Bank and YES Bank, the new CEOs in the banking space have some challenging tasks. For instance, the IDBI Bank now has Rakesh Sharma with three-year tenure to effect a turnaround post the entry of Life Insurance Corporation (LIC) as its new promoter. Unlike other new CEOs, who have different backgrounds, Sharma comes from the same culture. In fact, Sharma spent most of his working life at the State Bank of India. After having a brief stint at Lakshmi Vilas Bank, Sharma was picked by the government for managing South-based Canara Bank. He did a good job at Canara, but the provisioning for stressed assets led to losses in 2017-18. The bank is now back to profitability. But Sharma has a new challenge as IDBI Bank has been facing asset quality deterioration and capital shortages, of late. Following are the challenges that Rakesh Sharma has to deal with as IDBI Bank CEO:
i) Bottom of the pit in terms of performance
This tenth largest Indian bank is the worst performer in the market. The net non-performing assets (NPAs) reached 16.69 per cent in 2017-18 with provision coverage ratio of 48.43 per cent. The losses in the nine months of 2018-19 have crossed Rs 10,000 crore. The bank has to first improve its performance by focusing on high-yielding assets, fee based income, cross-selling and by focusing more on retail.
ii) Plan to come out of RBI's Prompt Corrective Action
The bank is currently under the RBI's PCA regime because of a fall in capital adequacy, return on assets and also profitability. The entry of a new promoter LIC will solve the capital issue as the LIC has funds to infuse into the bank. In fact, the longer-term capital issue is resolved to take the bank forward. LIC has made a success out of LIC Housing Finance, which is a subsidiary of the insurance giant. There are similar expectations from the LIC for IDBI Bank as well.
iii) Stepping up recovery
The immediate task has to be the recovery. While the asset reconstruction or direct sale take time , the IBC (Insolvency and Bankruptcy Code) is stabilising well to recover the bad loans. The bank needs a strategy to work with other banks to effect a faster restructuring of loans under IBC.
iv) Review of credit standards
While IBC will encourage a good behavior from corporate borrowers, the bank needs to overhaul its credit standards. The bank has to exploit the technological tools like data analytics, Artificial Intelligence (AI), Machine Learning (ML) to fraud detection software to make the credit process foolproof. There is a need to implement effective risk management practices to track the corporate borrowers.
v) Exploiting synergies with LIC
The bank has to exploit the synergies with LIC, especially by selling the policies through the branch network of the bank.
viii) Sale of non-core assets
IDBI Bank, which turned into a bank from being a development financial institution, has a lot of strategic investment in institutions. For example, the IDBI Bank has stakes in insurance and asset management businesses. There are already plans to sell stakes in these businesses.