IDBI Bank eases restrictions on corporate lending

Public sector lender IDBI Bank has eased the restrictions on corporate lending after it improved performance on Priority Sector Lending (PSL) in 2014-15.

The bank, which started out as a development finance institution, still has over 65 per cent loans that are given to corporates. The limit on lending to corporate sector kicked in as the lender has had to rebalance its net bank credit to meet priority sector lending norms. Out of total lending, 40 per cent of loans must go to priority areas like agriculture and weaker sections. The growing corporate loan book rapidly meant PSL obligations also went up but limited branch network often worked as a drag to reach targets.

M S Raghavan, chairman and managing director, IDBI Bank, said in the last two years the focus has been on increasing PSL book. Now the PSL book share stands at 37.2 per cent for FY15, up from 34.5 per cent in FY14.

The revised PSL norms that now cover loans to medium enterprises and agri-processing units will facilitate work to reach the 40 per cent target. "In this backdrop, we are easing limits set on corporate lending," Raghavan said.

Another senior IDBI Bank executive pointed out that the demand for loans from corporates has been tepid for last two-three years when the economic growth was low. "This also helped to rebalance loan book, helping to improve PSL performance. The easing of norms would help the bank in scaling up lending (to companies), when demand pick up on back of economic recovery in later part of 2015-16," he said.

The total advances grew by just five per cent to Rs 2,08,377 crore in FY15 ended March 2015. The pace of loan growth in FY14 was just one per cent with outstanding advances of Rs 1, 97,686 crore.

Referring to capital requirements to fund growth, IDBI Bank chief said with capital adequacy ratio of 11.76 per cent at end of March 2015, there is no anxiety to raise equity immediately.

The present market value of about Rs 70 per share, almost half the book value of Rs 141 at end March 2015, hardly reflects the strength. The bank will raise equity capital when the market values us with better pricing.

The government, which holds just over 76 per cent stake in Mumbai-based public sector lender, has infused over Rs 6,284 crore through four tranches from 201-11. In 2014-15 IDBI did not make it to list of public sector banks who received capital from government as it failed to meet efficiency norms.