Govt, LIC to share Rs9,250-cr capital Infusion in IDBI Bank
03 Sep 2019
The union cabinet chaired by Prime Minister Narendra Modi today approved capital infusion of Rs9,000 crore in loss-hit IDBI Bank.
The union government today cleared recapitalisation of IDBI Bank with one-time infusion of Rs4,557 crore by the government and Rs4,700 crore by majority shareholder LIC, information and broadcasting minister Prakash Javadekar told reporters after the cabinet meeting.
This will help IDBI Bank complete the turnaround process and enable it to return to profitability and normal lending activity, which in turn would help government recover its investment at an opportune time.
IDBI Bank needs a one-time infusion of capital to complete the exercise of dealing with its legacy book. It has already completed substantial clean-up, reducing net NPA from peak of 18.8 percent in June 2018 to 8 per cent in June 2019. The capital for this has to come from its shareholders.
LIC holds 51 per cent equity in the bank, but is not allowed to raise stake under insurance regulations. Of the nearly Rs9,300 crore needed, LIC would meet 51 per cent (Rs4,743 crore). The remaining 49 per cent, amounting to Rs4,557 crore, is proposed to be contributed by the government as its share on a one-time basis.
After this infusion, IDBI Bank expects to be able to subsequently raise further capital on its own and come out of RBI’s Prompt Corrective Action (PCA) framework sometime next year. This cash neutral infusion will be through recap bonds, ie, government infusing capital into the bank and the bank buying the recap bond from the government the same day, with no impact on liquidity or current year’s budget.
LIC acquired 51 per cent stake in IDBI Bank in August 2018, following cabinet’s approval. Government, however, continues to be a promoter and holds 46.46 per cent stake in the bank.
The financial parameters of IDBI Bank have improved considerably during the last one year:
- CRAR has improved from 6.22 per cent as of 30 September 2018 to 11.58 per cent as on 31 March 2019;
- Net NPA ratio has come down from 17.3 per cent as of 30.9.18 to 10.11 per cent as on 31 March 2019 and further to 8.02 per cent by 30 June 2019;
- Provision Coverage Ratio (PCR) has improved from 69 per cent as of 30 September 2018 to 83 per cent as on 31 March 2019 and further to 88 per cent as on 30 June 2019.
Synergy with LIC has enabled IDBI Bank access 290 million policyholders base spread over 3,184 branches and also to 1.1 million agents and 2 lakh employees of LIC.
The bank has projected Rs500 crore revenue for FY2020 and Rs1,000 crore from FY2021 onwards with LIC support.
Sale of insurance kick-started in March 2019 with Rs160 crore premium. This momentum has continued with over Rs250 crore premium collection in first four and a half months of this year. FY 2019-20 target is Rs2,000 crore of premium and Rs200 crore revenue.
IDBI Bank anticipates additional business of Rs5,000 crore from housing loan, auto loan and personal loan by leveraging LIC agents’ network.
The government had in the Union Budget announced capital infusion of Rs70,000 in public sector banks.