IDBI bank gets a fright

the Barbra Streisand song, ‘Happy Days Are Here Again’ could have very well become the 2021 theme song for IDBI Bank. the lender had a dream run of sorts this year with profits improving, bad loans falling, RBI restrictions being removed, and the road to privatization being cleared. but right before year-end, diamantaire group Sanghavi Exports played a dampener. 

a default by this diamond firm is not good news for the bank, which came out of the financial doldrums less than 12 months ago. in fact, the government’s plan to sell its 45% stake was also underway when this loan failure crept up. 

news reports quoting bank sources initially reported that Sanghavi Exports defaulted on a Rs 6,710 crore IDBI Bank loan. these numbers sent shock waves running across banking circles that started calling it the second-biggest default after the PNB scam. funnily enough, that default also involved a diamond company.

however, the bank clarified that this is an inaccurate number, stating that the actual default was Rs 16.72 crore. it also added that this firm’s account has been declared a non-performing asset. 

back to black

in March, when the Reserve Bank of India (RBI) removed IDBI Bank from its prompt corrective action framework, things began looking bright for the bank. in simple terms, this meant that the restrictions imposed on the bank’s lending and expansion activities had finally ended after four years.

this was followed by its Q4 results, where IDBI Bank turned profitable after five years. it posted a net profit of Rs 1,359 crore for FY21 against a net loss of Rs 12,887 crore in the previous fiscal. these numbers were good enough for the government to begin its stake sale process. on the road to privatization, IDBI Bank’s numbers improved further. in Q1 FY22, its net profits tripled to Rs 603 crore and again rose by 75% in Q2 on better recoveries. 

are investors worried?

as the divestment process picks up pace, this default news has landed. but the investors seem convinced, for now, considering that the bank stock has not been immediately affected.  

even as it’s taking some efforts for the bank to recover debts from Sanghavi Exports, its gross NPA (as of Q2) stands at a steep 20.92%. how soon the borrowers repay their loans will shape IDBI Bank’s future.