The Union Cabinet has approved the proposal to infuse Rs 9,000 crore to extend IDBI’s capital base. The lender expects to exit the RBI's Prompt Corrective Action framework sometime next year.
New Delhi: The ailing IDBI Bank has finally found relief as it will receive a cash infusion of Rs, 9000 crore. The government has reportedly approved the decision to extend the lender’s capital base.
Information and broadcasting minister Prakash Javadekar reportedly told media a one-time infusion will see the recapitalisation of IDBI Bank by the government and the LIC.
Javadekar also reportedly said that the government will provide Rs 4,577 crore while the stakeholder LIC will infuse Rs 9,000 crore.
Though the asset quality of the bank has improved slightly, there is still some concern. The bank’s NPA ratio reportedly dropped to 29.12% from 30.78% reported in the first quarter of the financial year, while the net non-performing assets ratio dropped to 8% from 18.76%. As the operating profit of the bank declined by 12%, its capital base too has been waning.
The bank’s debt rating was also placed on 'credit watch negative' for crossing the threshold on capital requirement. Its shares dropped to Rs 26.05 last week, down 9.3%.
The company that has travelled far down a bad road and was trading at Rs 26.25 apiece, had been trading at Rs 56.5 in January when LIC came on board and coughed up nearly Rs 20,000 crore.
Despite these predicaments, the IDBI’s potential to hawk its insurance products gives LIC something to trust in.
Though the management of the bank and the government indicated that the situation would improve, IDBI’s struggle over the last 11 quarters had brought it under the RBI's Prompt Corrective Action framework, which it now expects to exit sometime next year.
It was less than a fortnight ago since finance minister Nirmala Sitharaman's declared a capital infusion of Rs 70,000 crore to public sector banks.
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