IDBI Bank gets Cabinet nod for Rs 9,000-cr fund infusion, move aims at increasing lender's capital base

The government on Tuesday approved Rs 9,300 crore fund infusion in IDBI Bank to help improve the bank's capital base and turn it profitable.

Briefing media about Cabinet decisions, Information and Broadcasting Minister Prakash Javadekar said it will help in completing the process of IDBI Bank's turnaround and enable it to return to profitability and normal lending, and giving the government the option of recovering its investment at an opportune time.

Of the Rs 9,300 crore needed, LIC would meet 51 percent (Rs 4,743 crore), he said.

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The remaining 49 percent, amounting to Rs 4,557 crore, is proposed from the government as its share on a one-time basis, he added.

The shareholding of the government was reduced to 46.46 percent from 86 percent while LIC stake in the bank increased to 51 percent in January this year.

LIC acquired controlling 51 percent stake in the bank, making it the lender's majority shareholder in January this year.

After this infusion, IDBI Bank expects to be able to subsequently raise further capital on its own and expects to come out of RBI's Prompt Corrective Action (PCA) framework sometime next year, he said.

"This cash neutral infusion will be through recap bonds i.e. Government infusing capital into the bank and the bank buying the recap bond from Government the same day, with no impact on liquidity or current year's Budget," he said.

IDBI Bank needs a one-time infusion of capital to complete the exercise of dealing with its legacy book, he said, adding it has already substantially cleaned up, reducing net NPA from peak of 18.8 percent in June 2018 to 8 percent in June 2019.

The capital for this has to come from its shareholders. LIC is at 51 percent and is not allowed to go higher by the insurance regulator.

Representational image. Reuters.

In August last year, the Cabinet approved the acquisition of controlling stake by Life Insurance Corporation (LIC) as a promoter in the bank through a combination of preferential allotment and open offer of equity.

IDBI Bank with over 800 branches has about 1.5 crore retail customers and about 18,000 employees.

For the first quarter ended June 2019, IDBI Bank reported a net loss of Rs 3,801 crore as compared to Rs 2,410 crore in the same quarter of the last year.

Gross non-performing assets (NPAs), as a percentage of total advances, were at 29.12 percent in the quarter compared to 30.78 percent in the year-ago June quarter.

Post provisioning, the net NPA too came down to 8.02 percent as against 18.76 percent in the year-ago quarter.

Provision Coverage Ratio (PCR) improved from 69 percent from September 2018 to 83 percent in March 2019 and further to 88 percent as on 30 June, 2019.

Synergy with LIC has enabled access to 29 crore policyholders base spread over 3,184 branches and also to 11 lakh agents and 2 lakh employees of LIC, an official statement.

From LIC synergy, the bank is expected to earn Rs 500 crore revenue in 2019-20 and Rs 1,000 crore from 2020-21 onwards, an official statement said.

"Sale of insurance kick-started in March 2019 with Rs 160 crore premium. This momentum has continued with over Rs 250 crore premium collection in the first four and a half months of this year. FY 2019-20 target is Rs 2,000 crore of premium and Rs 200 crore revenue," it said.

Additional business anticipated is Rs 5,000 crore (housing loan, auto loan, personal loan) by leveraging LIC agents' network, it said.

— With PTI inputs