Shares of IDBI Bank rose 7.86 per cent to Rs 70 apiece to hit the highest level in more than five years on the BSE in Tuesday’s intra-day trade. The stock hit its highest level since April 2018, on the back of heavy volumes.
In the past two trading days, the stock has rallied 16 per cent as the government invited bids to appoint an asset valuer for IDBI Bank’s divestment.
On Saturday, the Department of Investment & Public Asset Management (DIPAM), on behalf of the government and Life Insurance Corporation (LIC), had floated an RFP (request for proposal) to engage a “reputed asset valuer registered with the Insolvency & Bankruptcy Board of India (IBBI). The last date to submit bids is October 9.
DIPAM had said that the asset valuer would be required to value IDBI Bank’s investments (including investments in subsidiaries and associates and joint ventures and affiliates), loans and advances, fixed assets and other assets.
The bank’s liabilities include deposits, borrowings and other liabilities and provisions. The asset valuer will also have to work closely with the transaction adviser and legal adviser appointed by DIPAM.
“The contract (for asset valuer) shall be initially valid for a period of three years from the date of issue of the appointment letter and may be extended by one more year on existing terms and conditions,” the RFP said.
In May 2021, the Cabinet Committee on Economic Affairs had approved the strategic divestment of the Centre’s and LIC’s equity, along with the transfer of management control, in IDBI Bank.
In the past six months, the stock has zoomed 40 per cent as against a 9 per cent rise in the benchmark index. The strong outperformance in the stock was due to the continued improvement in its profitability levels, driven by the steady decline in fresh non-performing advances (NPA) additions and the sustained reduction in its legacy stress assets, leading to lower credit costs.
This was supported by the large-scale capital support in the past from the government and LIC, which helped shore up the provision cover on legacy NPAs. This, together with the improvement in profitability, has contributed to the strengthening of the bank’s capitalisation and solvency1 profile over time as well, according to rating agency ICRA.
ICRA said that IDBI’s current and savings account (CASA) deposits and retail term deposits grew steadily and the deposit base remains granular. The bank’s ability to continuously maintain and grow the core deposit base upon the change in ownership may, however, remain monitorable.
