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Cabinet approves capital infusion in IDBI Bank

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Capital Market

Govt to infuse Rs 4557 crore, LIC to infuse 51% or Rs 4743 crore of required one time capital of Rs 9300 crore

The Union Cabinet chaired by the Prime Minister Narendra Modi has approved the infusion of Rs 4557 crore by Government in IDBI Bank. It will help in completing the process of IDBI Bank's turnaround and enable it to return to profitability and normal lending, and giving Government the option of recovering 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 substantially cleaned up, reducing net NPA from peak of 18.8% in June 2018 to 8% in June 2019. The capital for this has to come from its shareholders. LIC is at 51% and is not allowed to go higher by the insurance regulator. Of the Rs 9300 crore needed, LIC would meet 51% (Rs 4743 crore). Remaining 49%, amounting to Rs 4557 crore, is proposed from Government as its share on one time basis.

 

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. 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 the Government the same day, with no impact on liquidity or current year's Budget.

Following Cabinet's approval in August 2018, LIC acquired 51% stake in IDBI Bank. Government continues to be a promoter and holds 46.46% stake. The financial parameters of IDBI Bank have improved considerably during the last one year:

CRAR has improved from 6.22% as on 30.9.18 to 11.58% as on 31 March 2019.

Net NPA ratio reduced from 17.3% as on 30 September 2018 to 10.11% as on 31 March 2019 and further to 8.02% as on 30 June 2019.

Provision Coverage Ratio (PCR) improved from 69% (30 September 2018) to 83% (31 March 19) and further to 88% on 30 June 2019.

Synergy with LIC has enabled access to 29 crore policyholders base spread over 3184 branches and also to 11 lakh agents and 2 lakh employees of LIC.

Rs 500 crore revenue for FY 2020 and Rs 1000 crore from FY 2021 onwards projected from LIC Synergy.

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 first four and a half months of this year. FY 2019-20 target is Rs 2000 crore of premium and Rs 200 crore revenue.

Additional business anticipated is Rs 5000 crore (Housing loan, Auto loan, personal loan) by leveraging LIC agents network.

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First Published: Sep 03 2019 | 3:48 PM IST

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