The Cabinet, chaired by the Prime Minister Narendra Modi, cleared recapitalisation of IDBI Bank, in which the government will infuse Rs 4,557 crore, and Life Insurance Corporation (LIC) will invest Rs 4,743 crore. The capital infusion 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.
The stressed IDBI Bank, which reported a net loss of Rs 3,800 crore in the first quarter and put on credit watch by ratings agency S&P Global last month, needed a one-time infusion of capital to complete the exercise of dealing with its legacy book. After this capital infusion, IDBI Bank is expected to be able to subsequently raise further capital on its own and expected to come out of RBI’s Prompt Corrective Action (PCA) framework sometime next year, as per the Cabinet statement.
IDBI Bank has already substantially cleaned up its balance sheet, reducing net non-performing asset (NPA) from peak of 18.8 per cent in June 2018 to 8 per cent in June 2019.
Following cabinet’s approval in August 2018, LIC completed acquisition of 51 per cent stake in IDBI Bank in January this year, while government continued to be a promoter and owned 46.46 per cent shares in the bank.