Why SBI is not too keen to buy IDBI Bank’s toxic loans

The government is exploring an exercise to move a chunk of IDBI Bank’s stressed loans to the books of State Bank of India (SBI). Understandably, the top management at the country’s biggest lender is unhappy with the idea of toxic assets being foisted on them, sources told FE.

The government, FE has learnt, would like SBI to ‘buy’ both non-performing assets (NPAs) and standard stressed loans — loans which are not NPAs yet but for which promoters have missed the repayment deadlines.

The big concern that SBI has is that the toxic assets are being offered by IDBI Bank at very unattractive prices. IDBI Bank is willing to take haircuts, on the sales of the loans, of only around 20-50%. Given the quality of the assets, the SBI management believes the discounts need to be much higher, somewhere in the region of 70-85%.

Last week, MK Jain, MD & CEO, IDBI Bank, confirmed the lender’s board had approved a proposal to Rs 21,397 crore of loans, comprising 30 corporate accounts. “Obviously, there’ll be a process and in a few months… we have to run that process and then we will see how much we are able to work out,” he said.

A sale of toxic assets would make IDBI Bank’s balance sheet cleaner and the lender more eligible for an investment or takeover by a strategic investor. While the government, which owns 80.96% of IDBI Bank, has been trying to offload a stake in it for some time now, the effort has been unsuccessful.

Notable loans up for sale include IDBI Bank’s loans to Air India, GMR Hyderabad Vijayawada Expressways, KSK Mahanadi Power and a clutch of power projects.

As on March 31, 2018, IDBI Bank’s NPAs were at a Rs 55,588 crore, of which the standard stressed loans accounted Rs 10,131 crore (fund and non-fund based).

“The government wants SBI to take these assets on its books because the quantum would be relatively small compared to SBI’s balance sheet. At the same time, IDBI Bank’s books would have been spruced up,” a banker said.

Senior executives from both lenders indicated to FE five meetings had been held to discuss the exercise though no decisions had been arrived at yet. The top brass of SBI is uncomfortable with taking on stressed assets of IDBI Bank and has expressed its reluctance to do so. SBI, the top executives have pointed out, already has more than Rs 2 lakh crore of bad assets and under the circumstances, it would not be prudent to be saddled with more.

SBI reported a loss Rs 7,718 crore for the three months to March — the lender’s second consecutive quarterly loss in FY18. The lender’s asset quality deteriorated taking the gross NPAs to 10.91% of total assets or Rs 2.23 lakh crore in absolute terms.

Emails sent to SBI, IDBI Bank and to the companies, except GMR, remained unanswered till the time of going to the press.

Meanwhile, IDBI Bank posted a loss Rs 5,663 crore in the March quarter of FY18, wider than the loss Rs 3,200 crore in the same period of FY17. The bank’s gross bad loan ratio hit a record-high of 27.95% in Q4 of 2017-18, signifying that more than one-fourth of its total loans have now turned bad.

A GMR Group spokesperson said, “To the best of our knowledge, we are not aware of any plans of IDBI Bank to sell our asset to SBI.”