HYDERABAD : IDBI Bank needs an emergency lifeboat of Rs 4,000 crore by December. Given this capital is not found, the bank will likely miss coupon payments worth Rs 1,000 crore to be serviced this month and next. “IDBI immediately needs capital infusion this quarter, as CET-1 (Common Equity Tier) is significantly lower. The bank’s risk-weighted assets are around Rs 2 lakh crore, 2 per cent of which translates to Rs 4,000 crore. This is without considering third quarter losses ... coupon payments are contingent upon the ability of the bank’s CRAR,” Anil Gupta, VP, Financial Sector Ratings, ICRA Ratings, told Express. The needed Rs 4,000 crore is over and above the Rs 2,000 crore capital that incoming promoter LIC infused in September.
Currently, IDBI’s CET-1 is about 3.87 per cent, (down from 5.84 per cent as on June 2018) as against the minimum requirement of 5.5 per cent. Its asset quality too is deteriorating with slippages increasing in Q2. Add to this the stressed loan pile, which continues to be high in relation to the bank’s net worth. “Some way has to be found. The onus of bailing out or infusing capital now lies with LIC.
But pending shareholders’ approval (to pick up stake up to 51 per cent), it’s unclear how capital infusion will happen,” Gupta explained. Government is unlikely to offer help as it’s already short of capital, and moreover, there are other banks that are high on capital requirement.
Maintaining capital ratios above regulatory levels is critical for servicing the bank’s Basel II debt capital instruments. Although the IDBI-LIC deal is expected to provide capital, whether this will come before the coupon payment dates needs to be watched out for. Rating firms including ICRA have already placed some of IDBI’s upper tier-II bonds under ratings watch with developing implications.
Meanwhile, profitability remains under pressure. The bank’s net interest income fell 21.5 per cent to Rs 1,301 crore compared to Rs 1,657 crore last year. IDBI reported net loss of Rs 3,602 crore during the second quarter.