The Cabinet on Tuesday approved a one-time capital infusion of ₹4,557 crore into IDBI Bank in a bid to help the bank return to profitability, the government said.
The Life Insurance Corporation of India, which owns a 51% stake in the bank, will infuse another ₹4,743 crore in IDBI. “It will help in completing the process of IDBI Bank’s turnaround and enable it to return to profitability and normal lending, and giving the government the option of recovering its investment at an opportune time,” it said in a release.
“IDBI Bank needs a one-time infusion of capital to complete the exercise of dealing with its legacy book,” it added. “It has already substantially cleaned up [its books], reducing net NPA from a peak of 18.8% in June 2018 to 8% in June 2019. The capital for this has to come from its shareholders.”
“Of the ₹9,300 crore needed, LIC would meet 51% (₹4,743 crore),” the Centre said. “The remaining 49%, amounting to ₹4,557 crore, is proposed from the government as its share on one-time basis.”
The infusion is expected to help IDBI raise further capital on its own and come out of the Reserve Bank of India’s Prompt Corrective Action framework next year. The infusion will be through recapitalisation bonds. The government will infuse the capital into the bank and the bank will buy the recapitalisation bonds from the government on the same day, with no impact on liquidity or the current year’s Budget, the government added.