The beleaguered IDBI bank gets a fresh lease as the union cabinet approved one-time capitalisation of Rs 9257. Of the total amount, the government will be infusing Rs 4,557 crore, and Life Corporation of India (LIC), which holds a 51 per cent stake in the bank, will provide another Rs 4,700 crore. As on June 30, the government holds a 46.46 per cent stake in the lender.
A statement by government read, "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 ₹9,300 crore needed, LIC would meet 51% (Rs. 4,743 crore). The remaining 49%, amounting to Rs.4,557 crore, is proposed from the government as its share on a one-time basis."
The government official said that they are confident of a turnaround with the recapitalisation. It further added, "It will help in completing the process of IDBI Bank's turnaround and enable it to return to profitability and normal lending, giving the government the option of recovering its investment at an opportune time."
Financial daily, Mint reported that the infusion will be through recapitalisation bonds, in which the government will infuse capital into IDBI, which will eventually buy the recapitalised bonds from the government the same day.
Notably, the proposed money will be released as a part of the government's plan to recapitalise the national banks with a fund infusion of Rs 70,000 crore in the current financial year. Out of declared recapitalisation corpus, The money will be released as part of the Rs 70,000 crore bank recapitalisation plan, of which over Rs 55,000 crore has already been set aside for the state-owned lenders led by the entity to be created by the merger of Punjab National Bank, Oriental Bank of Commerce and United Bank of India, which is expected to get Rs 16,000 crore.
It is to be noted that IDBI bank is reeling under heavy debt of nonperforming assets (NPAs), which on a gross basis was estimated at more than 29% of advances as on June 30. The bank's share has registered negative growth in the last one year despite the assurance given by its management and government that the worst phase is over. The poor performance has led to Reserve Bank of Indian (RBI) putting the IDBI bank under the Prompt Corrective Action framework which meant that the bank could not carry out expansion and lending activities.