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    We will surely come out of PCA fully after September: Rakesh Sharma, IDBI Bank


    Story outline

    • Improving synergies with LIC will help us improve the CASA ratio and income of IDBI Bank.
    • By the June quarter, we should be able to reduce the net NPA below 9 per cent.
    • Within next one year, I am hopeful IDBI Bank will be one of the good banks with retail focus.
    "Although there are restrictions from the RBI, we are growing at 10 per cent in retail portfolio," says IDBI Bank MD & CEO Rakesh Sharma.

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    IDBI Bank's NPA recoveries have been good and the lender has been able to control slippages. That explains MD and CEO Rakesh Sharma's confidence. Next year, the bank will be able recover almost Rs 10,000-12,000 crore in NCLT and a few non-NCLT cases, Sharma told ETNow.

    Edited excerpts:

    The bank continues to register losses for yet another quarter. Net interest income and operating profits continue to remain under pressure. When should we expect that bank will return to profit?

    We have to see this profitability in the background that the NPAs are around 31 per cent. Because of this, 31 per cent of my advances are not generating any income. That is why these losses are continuing, but one thing you will appreciate that there was operating profit of Rs 725 crore and net interest income during the quarter has shown 3 per cent growth.

    Basically, the way forward is recover these NPAs so that the funds can be profitably utilised and to the maximum extent provide for this so that in future whenever recovery is made, we will not be required to make any additional provision and that provision should be sufficient. With that, I hope after this September quarter, we should be in profit.

    On the NCLT front, since you have had large exposure to some of the NCLT cases, when do we see a recovery start kicking in at your level?

    Like total, we have an outstanding of Rs 24,000 crore on NCLT-1 and NCLT-2 list, but if you see overall total NCLT cases that have been filed either by unsecured creditors or other banks or our bank, the total accounts are 308 and the outstanding which is covered is Rs 35,000 crores. Now, in some of these accounts, we have already seen some recovery happening and some are at a very advanced stage. We expect a recovery in the current quarter also.

    Now if you see the previous quarter, our recovery was Rs 3,440 crore which covers some of the NCLT accounts too. Now in the current quarter, we are expecting recovery of almost Rs 4,500 crore in both NCLT and non-NCLT cases. IBC is a good act, in fact, a lot of good developments are happening but due to some initial issues, there is some delay.

    But I am quite hopeful that next year, we will be able effect recovery of almost Rs 10,000-12,000 crore in NCLT and some non-NCLT cases. That will help us in not only reducing our gross and net NPAs, but improve our profitability.

    Also, we want to understand now that LIC is the majority holder in IDBI Bank. What are the changes that one can expect in the management structure here onwards?

    Now, the first change which is quite visible is the LIC has infused capital of Rs 21,426 crore which has helped us in complying with the capital adequacy ratio criteria and today, on this front, we stand complied with. That is one issue.

    This is an alliance between two good brands. IDBI Bank is also a good brand and LIC is also an excellent brand. A lot of synergies are there. First, I would like to say a lot of synergies can be worked out which will help IDBI Bank improve its income and these synergies are by way of cross selling of LIC products, handling its cash management products, handling the LIC employees and 11 lakh agents.

    That is on the part of synergies. That will help us in improving the CASA ratio and the income of IDBI Bank. As far as management is concerned, first I will talk about the board level changes. Now, we are planning to induct additional five board directors. So two will be from LIC with three independent directors. Already, the board is good. With that, corporate governance will improve. That is one change at the board level.

    Of course, at the management level, LIC is the promoter and the Government of India is the core promoter. So, they will decide the management and we will continue with the best practices to turn around this bank.

    When can we expect the bank to come out of PCA?

    As you know, there are four parameters: one is capital adequacy, already we stand complied with. Then leveraging that is also complied with. Now remaining two parameters are there -- one is profitability and second is net NPA. Now, the NPA recoveries were good during this quarter and second, we have been able to control the slippages.

    Slippages are under control and net NPA which was 17.4 per cent has declined to 14 per cent. So my target is we should be able to reduce net NPA below 12 per cent by March 2019 so that will help us move to threshold 2 from threshold 3. Similarly, by the June quarter, we should be able to reduce net NPA below 9 per cent.

    By September, I hope it will be below 6 per cent. That will help us come out of the PCA framework.

    As for profitability, part one, my provision coverage ratio has improved substantially, it is now 75 per cent and gradually going forward, we will further improve it. My target is to improve it further to 80-85 per cent. Once all the NPAs are adequately provided for, that will not have further negative impact on the profits. I am sure that after the September quarter, we will come in with profits. That way, after September, I am sure we will come out of PCA fully.

    There are two parts to IDBI Bank, one what has gone wrong. How are you trying to fix it? That is what you have alluded to very-very clearly and very-very nicely, but the bank is also in the business of lending and participating in the new credit cycle. Do you have the bandwidth, balance sheet, even desire to participate in the new credit cycle?

    As you rightly said, some things have gone wrong. Some due to maybe internal reasons, some due to external reasons and we were mainly in corporate advances. Three years ago, our corporate portfolio was 80 per cent, which had a setback.

    Now going forward, one is the wherewithal whether we have the capacity to grow. Now LIC is the promoter, government is the co promoter. So that way, capital should not be a problem, number one. Two, once we come out of PCA and start doing our normal business, we should be able to raise capital from the market also and it can be raised in the form of either tier-1 bonds of through QIP.

    Now it is basically how to develop and transform this bank, that is more important. So for that, we have taken certain measures; one is of course, LIC synergies offer a lot of scope in additional business CASA deposits and retail advances. That will help us in improving our CASA business and retail business too.

    Second, as you know, IDBI Bank in the past too had one of the best practices in retail. Although there are restrictions from the RBI, we are growing at 10 per cent in retail portfolio.

    Now, we have a very good outbound sales team, our staff is young, the average age is 36 years. Our focus will be now on retail so that we can build up a good portfolio. And once we are out of PCA, selectively we can do corporate credit also.

    We have introduced new HR system for performance evaluation which is very objective. Every employee will be judged on the performance which is given by him or her so that way once this performance evaluation system is introduced, that will help us in fixing whether we can give some performance linked incentive and motivate the staff and the promotions will be linked to that.

    We are reviewing our credit and risk management policies. Within next one year, when we are out of PCA, capital is taken care of, our internal systems are strengthened, and we are ready for building a good retail portfolio, I am quite hopeful that it will be one of the good banks with retail focus.

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