The government has sent an advisory to all its departments to continue to park their deposits with IDBI Bank after noticing some of its departments and agencies had discontinued doing business following LIC’s acquisition of majority stake in the bank.
In a letter to the government departments and agencies, the Finance Ministry reminded that IDBI Bank is directly and indirectly almost fully owned by the Government of India.
After LIC picked up 51% stake in IDBI Bank, the Reserve Bank of India (RBI) classified the lender as private sector bank for regulatory purpose.
“It has been brought to the notice of this department that, pursuant to the recent acquisition of stake in IDBI Bank by the Life Insurance Corporation Bank of India, after which 51% of the stake in IDBI Bank is held by LIC, many central, state government departments, and government agencies and institutions have either withdrawn their funds/deposits from IDBI Bank or have not invited IDBI Bank to offer bids for deposits, or have expressed inability to continue grant of government business to IDBI bank,” the letter, a copy of which was reviewed by The Hindu , said.
In January this year, LIC completed the acquisition of 51% stake in IDBI Bank. In the last one year till end September, IDBI Bank’s total deposit base shrunk by about ₹5,000 crore — from ₹2,36,227 crore as on September 30, 2018, to ₹2,31,830 crore on on September 30, 2019. Net advances dipped by about ₹25,000 crore during the same period, from ₹1,57,791 core to ₹1,32,718 crore.
The finance ministry clarified that along with LIC, the government holds 97.46% stake directly and indirectly in IDBI Bank. “In this context, keeping in view the fact that LIC is wholly owned by Government of India and, together with Government of India’s holding of 46.46%, the direct and indirect government holding in the bank is 97.46%. Central /state government departments / agencies / institutions may continue to consider IDBI Bank for grant of government business,” the letter, a copy of which is marked to the RBI, said.
This is the second time the government has stepped in to rescue the lender after LIC’s takeover. In September, the government approved ₹9,300 crore capital infusion in IDBI Bank, of which LIC would give ₹4,743 crore and remaining ₹4,557 crore, by the government.
