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Cabinet approves capital infusion by Government & LIC in IDBI Bank
Economy

Cabinet approves capital infusion by Government & LIC in IDBI Bank

Agency News

New Delhi, Sep 3 : The Union Cabinet on Tuesday approved the infusion of Rs 4,557 cr by the government in IDBI Bank which would enable the bank to return to profitability and normal lending.

The Cabinet chaired by Prime Minister Narendra Modi approved the infusion. "Of the Rs. 9,300 crore needed, LIC would meet 51% (Rs. 4,743 crore) and remaining 49%, amounting to Rs. 4,557 crore, is proposed from Government as its share on a one time basis," an official release said.

The financial assistance 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.

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 pc stake in IDBI Bank. The Government continues to be a promoter and holds 46.46 pc stake. (UNI)