IDBI Bank Gets Strategic Divestment Approval. What's Next? - 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?  
  • Home
  • Views On News
  • May 6, 2021 - IDBI Bank Gets Strategic Divestment Approval. What's Next?

IDBI Bank Gets Strategic Divestment Approval. What's Next?

May 6, 2021

Shares of IDBI Bank rose 6.6% today after the bank got CCEA nod for divestment.

The government cleared a proposal for strategic disinvestment of IDBI Bank Ltd which is a step towards its efforts to meet the ambitious Rs 1.75 lakh crore disinvestment target for this fiscal year.

The proposal was approved by the Cabinet Committee on Economic Affairs (CCEA) chaired by Prime Minister Narendra Modi.

It involves the sale of a majority stake in the bank jointly by the government and Life Insurance Corporation of India (LIC), along with management control.

The Union government and LIC own 45.48% and 49.24%, respectively, in IDBI Bank, giving them a combined stake of more than 94%.

LIC is currently the promoter of IDBI Bank with management control after the government sold its majority stake to the state-run insurance giant in 2019.

However, the government and LIC may not fully sell their stakes and instead retain minority holdings post the strategic disinvestment.

"The extent of respective shareholding to be divested by GoI and LIC shall be decided at the time of structuring of transaction in consultation with the RBI," the cabinet secretariat said in a statement.

It was also noted the government will appoint advisers for the transaction. It will also issue the preliminary information memorandum inviting expression of interest for the stake sale.

--- Advertisement ---
The Only 20 Stocks to Own Forever?

After studying the Indian stock markets for 20 years now...

Our Co-head of Research Tanushree Banerjee has zeroed in on the ultimate list of Forever Stocks that have the potential to permanently lift you into the premier orbit of extreme wealth.

On June 21 at 5pm, Tanushree will be revealing the full details on the complete list of these stocks for Indian investors.

You Register your FREE spot for her Forever Stocks event with this link.
------------------------------

Expectations of the Proposal

The centre expects a buyer to infuse funds, new technology, and best management practices for growth of IDBI Bank as well as generate business without any dependence on LIC or the government.

The resources raised through strategic disinvestment would be used to finance developmental programs of the government.

The All India Bank Employees' Association said it's a retrograde step and the centre should focus on recovering bad loans due by corporate houses rather than selling it off.

Full-Year Profit in FY21 After 5 Years

IDBI Bank on Monday reported an annual profit for the first time in five years at Rs 13.6 bn for 2020-21. It had reported a loss of Rs 128.9 bn in fiscal 2019-20.

In the March quarter (Q4FY21), the bank reported a nearly four-fold jump in net profit to Rs 5.1 bn due to tax refund and higher net interest income.

While the bank's gross bad loans are still high at 22%, high provisions have helped bring down the net non-performing assets (NPA) ratio to 1.97%.

The bank's capital adequacy ratio was at 15.59% as of the end of March.

Its deposits rose 4% to Rs 2.3 trillion in FY21. The share of low-cost deposits rose to 50.5% in March 2021 from 47.7% in March 2020.

--- Advertisement ---
These 3 Stocks are the Dark Horses of the Stock Market

The mainstream media mostly ignores them.

Mutual funds and hedge funds can't buy them in bulk.

Stock brokers rarely cover them.

These stocks are the dark horses of the stock market.

They only come in limelight after they have rallied by hundreds or even thousands of percent.

Our head of smallcap research, Richa Agarwal, has a knack for identifying such stocks before they begin their rally.

Over the years, she has spotted such stocks which have gone on to offer triple and even quadruple digit gains for investors. (* Past performance is no guarantee of future results)

Today, when the markets are near all-time high... and some investors are thinking of booking profits... Richa has spotted 3 such stocks which are set for a massive rally.

She will reveal the details of these 3 stocks on 28th June at her free online summit.

Click here to sign-up. It's free.
------------------------------

A Look at IDBI Bank and LIC's Checkered Past

In August 2018, the government allowed LIC to buy 51% in IDBI Bank. This was when IDBI Bank was in dire need of capital.

Its bad loans had surged to 28% and the government was reluctant to put in more capital.

The promoter-ship of LIC for the lender, however, came with its own problems. Since LIC had to dip into policyholder funds to finance the stake purchase, the insurance regulator had raised concerns about long-term ownership of IDBI Bank.

Over the last few years, IDBI Bank has been cleaning up its books while being under the RBI's prompt corrective action framework for weak banks. On 10 March 2021, the RBI removed the restrictions placed on the lender.

IDBI Bank Out of Prompt Corrective Action

IDBI Bank came out of prompt corrective action (PCA) after improving its finances and credit profile in March 2021.

This eased the rules for the lender to expand business. It also set the stage for strategic divestment by the government of India, which holds 45.48% stake.

The RBI in a statement said its board for financial supervision had reviewed the performance of IDBI Bank at its meeting on 18 February 2021.

According to published results for the quarter ended 31 December 2020, the bank is not in breach of the PCA parameters on regulatory capital, net non-performing assets (NPAs), and leverage ratio.

IDBI Bank had been under the PCA framework since 2017. The PCA regime places curbs on big-ticket lending and expenditure and calls for a plan for turnaround.

BREAKING: It's Good Time to Invest in Gold, but Just Don't Go Blindfolded

The bank has furnished a written commitment saying it would comply with the norms of minimum regulatory capital, net NPAs, and leverage ratio on an ongoing basis.

IDBI Bank's exit from central bank purgatory has also raised hopes that the remaining three banks under PCA could be next in line for similar relief, having achieved parameters to justify their exit.

The three banks under PCA - Indian Overseas Bank (IOB), UCO Bank, and Central Bank of India - have reported net non-performing assets (NPAs) below levels that trigger PCA.

While IOB was placed under PCA in 2015, the other two joined two years later.

How Stock Markets Reacted to the News

Shares of IDBI Bank witnessed buying interest today and were trading up by 7.3% on the BSE at the time of writing at Rs 40.7 apiece.

IDBI Bank share price has touched a 52-week high of Rs 55.7 and a 52-week low of Rs 19.2.

On a year to date basis, share price of IDBI Bank is up 17% and over the past one year, it has gained a whopping 85% as can be seen from the chart below.

For more details about the company, you can have a look at IDBI Bank fact sheet and IDBI Bank quarterly results on our website.

And to know more about the banking sector in India, you can read our banking sector report.

Monish Vora

Monish Vora is a keen student of the markets and shares his observations through his clear and concise commentary.

Equitymaster requests your view! Post a comment on "IDBI Bank Gets Strategic Divestment Approval. What's Next?". 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.

Union Bank of India Swings to Profit as Asset Quality Improves (Views On News)

Jun 8, 2021

Union Bank's share price up 2% post March quarter earnings.

PNB Reports Profit in March Quarter After Three-Way Amalgamation (Views On News)

Jun 8, 2021

Shares of PNB fell over 2% yesterday despite healthy quarterly results.

Bank of Baroda Shares Plunge 5% After Reporting Huge Loss (Views On News)

May 31, 2021

The stock fell after the bank posted a loss due to higher tax expenses.

India's Largest Bank, SBI Posts Record Profit in Q4 (Views On News)

May 22, 2021

All you need to know about the bank's latest financial results.

More Views on News

Most Popular

A Complete Guide for Beginners on How to Invest in IPOs

As an investor, you must have endeavoured to find a suitable opportunity for investing in IPOs. But do you know what is an IP...

Hotel Stocks Will Reward Investors (Fast Profits Daily)

Jun 8, 2021

This is why I'm bullish on the hotel and hospitality sector.

My 'Unlock' Investments (Fast Profits Daily)

Jun 11, 2021

The best unlock investments you can make in the market.

The Most Visible Sign of India's Revival is on Two Wheels (Profit Hunter)

Jun 9, 2021

Investing in the best stocks could result in wealth compounding on a massive scale.

How I Discovered a 400-Year-Old Open Secret to Extreme Wealth (Profit Hunter)

Jun 11, 2021

Charlie Munger's open secret about investing success.

More

India's #1 Trader
Reveals His Secrets

Secret To Increasing Your Trading Profits Today
Get this Special Report,
The Secret to Increasing Your Trading Profits Today, Now!
We will never sell or rent your email id.
Please read our Terms

IDBI BANK SHARE PRICE


Jun 18, 2021 (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