IDBI Bank has informed the government that it may return to profit by the first quarter of the next fiscal year, marking a turnaround for the debt-laden lender in which the Life Insurance Corporation of India (LIC) is set to acquire a majority stake.
The bank offered this assessment of its financial situation at a meeting attended by senior finance ministry and LIC officials.
The bank is also counting on an estimated Rs 2,000 crore it will get from selling LIC plans and its cash management.
“We have told the government that despite the restrictions imposed under the prompt corrective action (PCA) framework of the Reserve Bank of India, we expect to increase our retail business and bring down bad loans,” said a senior IDBI Bank executive.
The official said the bank may need to make some more provisions for bad debt in the last two quarters of the fiscal.
IDBI Bank’s net loss widened to Rs 3,602 crore in the September quarter from Rs 197 crore in the year-ago period while the gross non-performing assets ratio slipped to 31.78% from 24.98%.
The meeting held last week also discussed the ongoing case challenging LIC’s move to raise its stake to 51% in the bank from 7.98% now. IDBI expects to raise Rs 20,000 crore from the stake sale.
The bank tops the list in terms of bad loans among state-run lenders. There are 11 state-run banks under the PCA framework.
The government and the RBI decided at the central board meeting on Monday that the regulator’s Board for Financial Supervision (BFS) will look into the issue of banks under PCA.
A finance ministry official said IDBI Bank is expected to be among the biggest beneficiaries from the resolution of cases under the Insolvency and Bankruptcy Code (IBC).
“They have projected a recovery of around Rs 8,000 crore in the next two quarters, of which around half is to come from cases under IBC,” he added.
The government is also hopeful that the LIC stake acquisition plan will get court approval.
“The decision was taken by the independent boards of these institutions and approved by the government, given the synergies these two institutions can explore for their benefit,” said the finance ministry official cited above.