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LIC-IDBI Bank deal: Money alone wont do; add vision & strategy to the mix

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MUMBAI/KOLKATA: Beleaguered IDBI Bank getting ₹9,000 crore in equity investment from Life Insurance Corp of India may be a lifeline for the lender, but to regain its past glory it requires a new vision and strategy from B Sriram who has taken over as its new chief executive.

For a bank that is stuck with more than a quarter of loans as bad loans and not much of a retail presence, a new strategy on how to ride the digital revolution and changed corporate loans landscape are the much needed solutions.

“The speed with which it got done is remarkable,” said Ashvin Parekh an independent industry analyst and a former consultant at EY.

“Between policyholders and shareholders of IDBI Bank, nobody should benefit at the cost of the other. There is no proposal as how LIC will bring the bank out of the rut. There will be constraints. When it will come to technicalities related to banking, we have to see whether they have the bandwidth.”

Capital alone is not enough for IDBI Bank. In the past decade, IDBI Bank has received capital from the government to the tune of ₹22,884 crore, data from ICRA shows. Even last fiscal it received ₹12,471 crore in capital IDBI Bank transformed into a universal lender from having been a term lending institution specialising in project funding in the pre-liberalisation era when the country faced enormous capital deficiency. Even as it changed its stripes, it was unable to cope with the challenges and competition.

IDBI Banks stressed assets from the state, far higher than any other bank. If the past capital investments did not help it much, it is doubtful whether LICs investment alone can bring the bank out of the slump.

“If the bank recovery happens in the next 4-6 quarters, then policyholders will benefit, else the money is going down the drain. LIC will have to provide more capital in the next few quarters,” said Parekh.

IDBI's stressed assets are at 27.95% of total, the highest among all banks. Its capital adequacy is at 10.70%. It hasnt made a profit in the past three fiscal years.

“LIC will now have higher representation in IDBI board. So, there will be fresh thinking which should help IDBI in the long run. This is the first step by the government in reviving state-owned banks,” said Sanjeev Jain, an analyst with Ashika Stock Broking. “Shareholders should see IDBI Bank as a longterm bet.”

While its immediate rival ICICI managed to become a fullfledged retail bank under the stewardship of KV Kamath, the continued government ownership and diktat from New Delhi restricted the activities of IDBI Bank.

But given its precarious financial position, it would be a tall order for it to cut cheques for thousands of crores for single project and sit pretty. With most banks switching out of project lending, the glory days of IDBI Bank may be behind.

Also, big companies such as Reliance Industries and Hindalco Industries are shifting their funding profile with them accessing the bond markets more often which give them better pricing than a bank loan.

So, IDBI Bank faces challenge in its traditional stronghold as well.

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