IDBI Bank @ Rs 68 ~ Will Govt really let go?

IDBI Bank @ Rs 68 ~ Will Govt really let go?

In 1995  IDBI the DFI came out with an IPO at Rs 130.I had given it the notorious sobriquet ‘Instant Death By Investment !’ as the Pricing was way to High.The IPO was bailed out by UTI at the time in a quid quo pro really as then IDBI subscribed to Unit 64 at the high purchase price which was a scam in itself as it was 60% higher than the actual Unit 64 NAV which hovered around par of Rs 10 !

Then in 2004  IDBI the DFI merged with IDBI Bank  and in 2010 I had recommended it at Rs 130 in 2010 for several reasons.It did climb past Rs 200 the same year but then disappointed and started it’s downward slide as NPA Demons begin surfacing big time.

Last Month in the second week of February these NPA Demons caused the Share Price to drop below Rs 50

On February 29,2016 our  FM made this  specific budget phraseology for IDBI :

“The process of transformation of IDBI Bank has already started. Government will take it forward and also consider the option of reducing its stake to below 50 per cent” 

It was a no brainer for the Share Price to begin rising the same day from Rs 58 levels to cross Rs 60

It’s now moved up @ Rs 68

Here’s the Share Price Trend of IDBI Bank  from 2004 to 2016 (in Rs)

Year

Open

High

Low

Close

2004

62.90

115.00

29.25

109.80

2005

110.95

130.95

76.30

97.15

2006

98.15

110.00

48.50

76.30

2007

76.80

181.00

66.50

165.30

2008

166.50

180.30

53.00

67.65

2009

68.00

140.00

39.75

127.45

2010

128.00

202.25

105.85

164.75

2011

165.75

168.30

77.40

77.80

2012

78.30

121.50

77.15

111.40

2013

112.10

118.20

52.30

66.45

2014

66.85

116.50

52.95

73.15

2015

73.25

95.70

52.45

87.80

2016

90.80

91.15

47.40

68.85

The Book Value of IDBI Bank is over Rs 110 giving the relative Valuation of  0.6….that’s of course one accepts current audited GPA levels of Rs 19615 crs ,that’s 8.94% of Advances and with a 62.92 % of Provision Coverage

Government owns 80.16% of IDBI Bank and if it is open to bring this down below 50% as proclaimed in the Budget by our FM then it begs the question ~ Will they just bring it down but yet retain Management Control or will IDBI really be up for Privatisation and therefore up for Sale ! ?

Quickly the IDBI Employees have voiced their displeasure and threatened to go on strike in the crucial last week of this month of March 2016 which closes out FY 16

Why would the IDBI Employees resist Privatisation or Government diluting it’s stake below 50!?

Seriously ask yourself this ! I reflected and immediately came up two big reasons in my view :

  1. Insecurity of Jobs ~ This is understandable as Employees have huge job security under the Government ~ Bank can Hire but not Fire ~ at best Government can try VRS as they’ve been doing over the years in PSU Banks ~ Connect this with how bloated Government Enterprises really are on workforce be it the Railways or Coal India
  2.  Accountability & Transparency in Operations ~ This would open a Pandora’s Box in the Bank for all the NPAs & who really is responsible in the Bank to have advanced Loans that have turned Bad.Of the over Rs 2 lakh crores advances ,the Bank reportedly has an exposure of  Rs 7000 crs  to the JaiPrakash Group,Rs 15000 crs to the Essar Group and @ Rs 925 crs to Kingfisher Airlines.In fact the ED is investigating Vijay Mallya & his Kingfisher Airlines for Siphoning off  @ Rs 300 crs Funds from the Rs 900+ crs IDBI Loan      

So will our Government be influenced by the IDBI Employees opposition & not go ahead with it’s plans to sell it’s stake in IDBI Bank to bring it below 50% ?…the Budget already shows FY 17 Disinvestment Target of Rs 36000 crs + Precise Strategic Disinvestment of Rs 20500 crs.This would  include  IDBI Bank Stake Sale planned read more