Rewarding failure? IDBI Bank to get Rs 9,300 crore from govt, LIC

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New Delhi | Updated: Sep 04, 2019 7:06 AM

On August 27, S&P Global Ratings placed IDBI Bank’s ‘BB/B’ ratings on “credit-watch negative” after regulatory capital breach. The bank’s capital to risk weighted assets ratio (CRAR) had slipped to 8.14% (regulatory requirement is 9%) as on June 30, 2019, from 11.58% on March 31, 2019.

IDBI Bank, idbi bank Life Insurance Corporation of India, idbi bank LIC, idbi SandP Global Ratings, IDBI Bank rating, idbi profit, idbi share, BB/B ratings, credit watch negative, Prompt Corrective Action, rbi pca tag, NPA The state-run insurer will fork out `4,743 crore, while the contribution of the government (`4,557 crore) will be cash-neutral

As IDBI Bank’s recovery to sound health seems slower than aimed by the government when it in August last year got the Life Insurance Corporation of India (LIC) to steeply raise its stake in the troubled bank to 51% at a cost of `14,500 crore, the Cabinet on Tuesday approved fresh capital infusion of `9,300 crore into the bank.

The state-run insurer will fork out `4,743 crore, while the contribution of the government (`4,557 crore) will be cash-neutral, as it is adopting the recapitalisation bond route. IDBI Bank had received `10,610 crore from the government in 2017-18, the most by any PSB in that year.

On August 27, S&P Global Ratings placed IDBI Bank’s ‘BB/B’ ratings on “credit-watch negative” after regulatory capital breach. The bank’s capital to risk weighted assets ratio (CRAR) had slipped to 8.14% (regulatory requirement is 9%) as on June 30, 2019, from 11.58% on March 31, 2019.

LIC had completed the process of increasing the stake in the bank in January this year. The Insurance Regulatory and Development Authority of India (Irdai) had in June 2018 allowed LIC to raise its stake in IDBI Bank up to 51% (the insurer’s stake was then 10.82%), giving it special relaxation from its 15% holding cap for insurers in a single firm. The insurer has to pare the stake to 15% in due course.

“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,” information and broadcasting minister Prakash Javadekar said.

After fresh capital infusion, IDBI Bank is expected to be able to subsequently raise further capital on its own and come out of the RBI’s Prompt Corrective Action (PCA) framework sometime next year, the minister said. The PCA tag restricts a bank’s normal lending. The IDBI Bank stock has dropped 53% so far in 2019, reflecting its poor balance sheet. It reported a loss of `3,801 crore for Q1FY20 compared with `2,410 crore in the year-ago quarter.

Net NPA ratio of the bank has reduced from 17.3% at September 2018 end to 8.02% at June 2019 end. Its provision coverage ratio (PCR) improved from 69% as on September 30, 2018, to 88% on June 30, 2019. Unable to sell off the bank, the Centre roped in LIC last year hoping for a turnaround, which gives an opportunity to each to use the other’s platform to sell products.

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