A controlling stake for Life Insurance Corporation (LIC) in IDBI Bank is seen as a possible solution for the bank's woes. The reason: LIC has a war chest of funds and could resolve the capital issues at IDBI Bank. But the problems are much deeper and require a multipronged approach. Take a look.
A CEO for a turn around
The bank desperately needs a CEO for an operational turn around. The government dispatched M. K. Jain, who turned around Indian Bank, to head the large-sized IDBI Bank but he was given another, bigger responsibility. Jain has been as Deputy Governor of the Reserve Bank of India. The government has now appointed B. Sriram, a seasoned State Bank of India (SBI) banker, who was also in the race to become SBI chairman last year. Still, the market or investors see this new appointment more as a rehabilitation of Sriram than the right man for the right job.
Low on capital
The bank has been running low on capital. In fact, the government has allocated some capital but due to the heavy provisioning requirement and losses for the last three years, it is getting absorbed very fast.
Deteriorating asset quality
The bank today has gross NPAs of 27 per cent. If one includes stressed loans, more than one-third of its book will be classified as stressed. There needs to be a focus on faster recovery, using the Insolvency & Bankruptcy Code ( IBC) to the bank's advantage and also using other tools like ARC or one time settlements to maximise the value.
Process of divestment of non-core assets
The bank had a clear plan for offloading stakes in non-core assets. In fact, the process was kicked off by M. K. Jain in the last one year. This needs priority, as the stock market is also at a peak, to get a good valuation.
Focus on cost and retail banking
Jain's biggest achievement at Indian Bank was the focus on costs. He reduced the cost to income ratio in a big way at his previous stint. Jain was also attacking costs from all fronts at IDBI Bank. This issue needs priority to bring the bank into shape as interest rates have also started rising. In order to succeed in retail banking, the only segment that offers hope as of now, a lower cost will bring in some competitive edge.