IDBI Bank Ltd has recently sold a Rs6,151 crore legacy stressed asset portfolio to Omkara Asset Reconstruction Company (ARC) for Rs652 crore, according
to a report from Business Standard. This transaction, concluded after an inter-se bidding process on 3rd August , saw Omkara ARC outbidding the government-promoted National Asset Reconstruction Company Ltd (NARCL). The disposal of this distressed portfolio is expected to help IDBI Bank's valuation as it removes longstanding unresolved loans, making the bank more attractive to potential bidders. Despite repeated efforts over the past two years, the government's plan to sell its stake in IDBI Bank has made little progress.
Over the past few years, IDBI Bank has received multiple bailouts after writing off tens of thousands crore rupees as bad loans. It was re-categorised as a private sector lender in January 2019 after the Life Insurance Corporation of India (LIC) increased its stake to 51% in the lender. The government has repeatedly infused large sums of money to bail out the bank and help it meet capital adequacy requirements; this in addition to LIC acquiring a 51% stake in a bailout move.
During FY13-14 to FY19-20, IDBI Bank wrote off total bad loans worth Rs45,693 crore but could recover just 8% of it after spending more than Rs29 crore, as the analysis of annual reports of the bank shows. The analysis is done by well-known activist Vivek Velankar as per a response from IDBI Bank under the Right to Information (RTI) Act and
reported in Moneylife.
A report from Reuters suggests that the Reserve Bank of India (RBI) has approved Fairfax Financial Holdings, Emirates NBD, and Kotak Mahindra Bank as potential bidders for IDBI Bank.
As a preliminary step to this stake sale, IDBI Bank has offered its Rs6,151 crore legacy stressed portfolio, which includes 239 accounts managed under the stressed asset stabilisation fund (SASF) since the Bank's merger with United Western Bank in October 2006.
Initially, the Bank set a reserve price of Rs642 crore for the portfolio. In the first bidding round, NARCL's offer slightly exceeded this reserve price, while Omkara ARC matched it. In the subsequent inter-se bidding, Omkara ARC increased its offer by Rs10 crore above the reserve price.
Other interested parties included Phoenix ARC, Asset Reconstruction Company (India), Assets Care & Reconstruction Enterprise (ACRE), JM Financial ARC, UV ARC, CFM ARC, Authum Investment & Infrastructure, Alpha Alternatives, and the manufacturing firm Puzzolana.
IDBI Bank's NPA troubles began long before it was reclassified as a private sector lender in January 2019, following LIC acquiring a 51% stake. The Bank's legacy issues date back to its inception as a term-lending institution and were worsened by its merger with United Western Bank in 2006 which brought additional financial burdens. Over the past few years, the government and LIC have repeatedly infused capital into IDBI Bank to ensure its survival. Between 2015 and 2019, the government and LIC together infused Rs42,781 crore. Despite these efforts, the Bank has continued to write off significant amounts as bad loans, recovering only a fraction of the total write-offs.
IDBI Bank's NPA challenges are demonstrated by several high-profile default cases:
2.
In June 2017, the enforcement directorate (ED) filed a charge sheet against Vijay Mallya and others in connection with a Rs900-crore loan default involving Kingfisher Airlines. In October 2009, IDBI Bank granted a short-term loan of Rs150 crore to Kingfisher Airlines, followed by another loan of Rs750 crore, including a bridge loan of Rs200 crore, without adequate collateral. Mallya, whose company owes around Rs9,000 crore to a consortium of 17 Indian banks, was declared an absconder after leaving India in March 2016. (
Moneylife: IDBI Bank issues public notice on 'wilful defaulter' Vijay Mallya)
3. On 20 December 2021, IANS reported that Sanghavi Exports International Pvt Ltd had allegedly defaulted on loans amounting to Rs6,710 crore from IDBI Bank. However, IDBI Bank quickly clarified that the default was just Rs16.72 crore of principal outstanding, citing factual inaccuracies in the news report.
Subsequently, the Bank issued another correction, stating the amount outstanding was Rs67.13 crore. This case of Sanghavi Exports, where the reported default amount was initially Rs6,710 crore and later corrected to Rs67.13 crore, highlighted the discrepancies in IDBI Bank's handling of different-sized defaults.
The Bank's swift response to clarify the lower default amount for Sanghavi Exports contrasted with its treatment of larger defaulters, where it has been accused of offering significant haircuts and one-time settlements, even for accounts declared fraudulent. The Bank settled the Rs5,000 crore default of C Sivasankaran for just Rs323 crore, a 95% haircut, even though his account had been declared fraudulent. Similarly, Videocon Industries, with an admitted debt of Rs64,838 crore, was never classified as a wilful defaulter, and banks are now looking to sell its assets to Vedanta group at a 95.85% haircut.
Further, a 15 December 2021 release from the income-tax (I-T) department indicated that ARCs are also part of the ‘crooked cabal’. The I-T statement says that raids across 60 premises of four ARCs had uncovered an ‘unholy nexus’ where assets were purchased by ARCs far below the value of collateral securities and then sold back to the borrowers after layering them through a "maze of shell/dummy concerns." ARCs were found to be complicit, with one of them caught maintaining a separate set of accounts for these dubious transactions. Allegations of a nexus between a bank and an ARC were also made in the case of a Jaisalmer hotel, Garh Rajwada, where the magistrate ordered the arrest of the former State Bank of India chairman, Pratip Chaudhuri, for an undervalued transaction by an ARC where he was the chairman. (
Moneylife: IDBI Bank’s Bumbling Exposes Everything That Is Wrong with Our Loan Recovery Processes)
Despite multiple bailouts and strategic moves to clean up its balance sheet, the Bank continues to face significant hurdles. The ongoing efforts to sell stakes and attract new investors may provide a way forward, but the shadow of NPAs remains a critical concern for IDBI Bank's future.
