The Government of India and state-owned insurance group Life Insurance Corporation of India (LIC) are set to inject INR93bn ($1.29bn) in troubled lender IDBI Bank.
The capital infusion is expected to help IDBI Bank resume normal lending and return to profitability. The bank is also expected to come out from the central bank’s Prompt Corrective Action (PCA) framework sometime next year.
Of the total amount, LIC will contribute 51% share (INR47.43bn). The remaining 49% (INR45.57bn) of the share will be provided by the government.
“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,” a government statement read.
Following the infusion, IDBI Bank is expected to raise additional capital on its own. This additional capital will be procured through recap bonds.
In January this year, LIC acquired a 51% stake in IDBI Bank, which had the highest ratio of bad loans among all state-owned lenders. The Indian government continues to be a promoter and holds a 46.46% stake in the bank.
The synergy with the insurance company also provided the bank with access to one lakh staff and 11 lakh agents of LIC.
During the last one year, net NPA ratio of the bank reduced from 17.3% to 10.11% in March 2019 and further to 8.02% as on 30 June this year.