IDBI: The clouds clear - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks

MEMBER'S LOGINX

     
Login Failure
   
     
   
     
 
 
 
(Please do not use this option on a public machine)
 
     
 
 
 
  Sign Up | Forgot Password?  

IDBI: The clouds clear

Feb 21, 2002

India’s second largest financial institution, IDBI, has finally received the government’s attention on its plans of transforming into a universal bank. Over the past few months, the institution has been working hard towards converting into a bank.Its initial plan of converting into a bank was not accepted by the RBI. This was due to the fact that the institution had been set up as a statutory corporation and banking activity was not permissible under the IDBI Act. The RBI also turned down the institution’s request of relaxing some of the banking norms (CRR, SLR) as the central bank has not given any relaxation to ICICI also.

In order to revive IDBI’s business and restore confidence, the Finance Minister is expected to announce a road map for IDBI’s transformation into a bank, in his budget speech. Accordingly, the government will set up a new entity under the Companies Act, 1956. IDBI’s assets and liabilities would be transferred to this new company and the existing IDBI Act would be repealed. Subsequently, a large public sector bank would be merged with this new entity.

This move of the government would be positive for IDBI, which is lacking funds and is facing challenging business conditions. In the first nine months of the current fiscal, IDBI’s total income declined by 4% and earnings witnessed a steep drop of 55%. This was mainly due to a 58% jump in bad and doubtful debts provisions. During the period, the total loans disbursed by the institutions were also lower by 23%. This clearly reflects the dismal state of IDBI’s business. Considering this, a leading rating agency has downgraded its bonds rating to ‘AA’ from the earlier ‘AAA’ making it difficult for IDBI to raise capital from the market at lower costs.

The institution’s merger with the bank would allow it to raise funds at a relatively lower cost and increase it spread. Public sector banks generally have wide spread network. IDBI can leverage these to distribute its personal finance products, which will help it to widen revenue base. However, before the institution starts its new life it needs to clear its large pool of NPAs (net NPAs of Rs 84 bn in FY01, accounting for about 91% of net worth).

The FM’s move has also cleared the issue of IDBI’s reverse merger with its banking arm, IDBI Bank that would now operate as a separate entity. Over the last few months, IDBI Bank, a new generations private sector bank was lacking capital for rapid expansion in its business. The bank would now be able to attract a strategic partner and raise funds. Its valuations would also get an upward re-rating once the detailed plan for its parent is cleared in the budget. IDBI Bank currently trades at a price to book value ratio of 1.2x.

Equitymaster requests your view! Post a comment on "IDBI: The clouds clear". Click here!

  

More Views on News

IDBI BANK Announces Quarterly Results (2QFY21); Net Profit Up 109.4% (Quarterly Result Update)

Oct 26, 2020 | Updated on Oct 26, 2020

For the quarter ended September 2020, IDBI BANK has posted a net profit of Rs 3 bn (up 109.4% YoY). Sales on the other hand came in at Rs 47 bn (down 9.8% YoY). Read on for a complete analysis of IDBI BANK's quarterly results.

IDBI BANK Announces Quarterly Results (4QFY20); Net Profit Up 102.8% (Quarterly Result Update)

Jun 1, 2020 | Updated on Jun 1, 2020

For the quarter ended March 2020, IDBI BANK has posted a net profit of Rs 1 bn (up 102.8% YoY). Sales on the other hand came in at Rs 56 bn (up 2.5% YoY). Read on for a complete analysis of IDBI BANK's quarterly results.

CAMS IPO: Should You Apply? (IPO)

Sep 18, 2020

Does the company having 70% market share of the mutual fund registrar business have sound prospects?

More Views on News

Most Popular

Not Infosys or Wipro. India's Next Wealth Creators Could Be Drone Stocks (Profit Hunter)

Nov 25, 2020

India's drones directorate signals the next big defence tech multibaggers.

It's Time to Book Profits (Fast Profits Daily)

Nov 27, 2020

In my first video on Equitymaster, I want to introduce you my proprietary greed and fear index. It's telling us to book some profits in the market.

How the New Margins Will Impact You (Fast Profits Daily)

Nov 25, 2020

The new rules on margins will come into effect from 1st December. Are you ready?

Create Wealth for Yourself in India's Drone Revolution (Profit Hunter)

Nov 27, 2020

The Chinese drone market is 14 times that of India's. Billions may flow into Indian drone companies too. Don't miss out on this wealth creating opportunity.

More

Covid-19 Proof
Multibagger Stocks

Covid19 Proof Multibaggers
Get this special report, authored by Equitymaster's top analysts now!
We will never sell or rent your email id.
Please read our Terms

IDBI BANK SHARE PRICE


Dec 4, 2020 (Close)

TRACK IDBI BANK

  • Track your investment in IDBI BANK with Equitymaster's Portfolio Tracker. Set live price alerts, get research alerts and more. Get access now...
  • Add To MyStocks

IDBI BANK 8-QTR ANALYSIS

COMPARE IDBI BANK WITH

MARKET STATS