New Delhi: The Union Cabinet chaired by the Prime Minister Shri Narendra Modi has approved the Infusion of Rs 4,557 crore by Government in IDBI Bank.
This will help IDBI Bank to complete the process of 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. 9,300 crore needed, LIC would meet 51% (Rs. 4,743 crores). Remaining 49%, amounting to Rs. 4,557 crore, is proposed from Government as its share on a 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.