The stressed IDBI Bank, which reported a net loss of Rs 3,800 crore in the first quarter and put on credit watch by ratings agency S&P Global last month, may have finally caught a break. A cash infusion of Rs 9,000 crore is reportedly on the cards.
The government is planning to pay its share of the bailout money that Life Insurance Corporation (LIC) has been seeking for the past several months, The Times of India reported citing sources.
This development follows Finance Minister Nirmala Sitharaman's declaration of an upfront capital infusion of Rs 70,000 crore to the public sector banks less than a fortnight ago. According to the sources, this fresh support to IDBI Bank will help tackle the financial crisis it is embroiled in. The bank has been in the red for the last 11 quarters - which brought it under the RBI's PCA framework last year - despite the management and the government repeatedly suggesting that the worst is over.
Although the bank's asset quality marginally improved during June quarter on a year-to-year basis, it is still a cause for concern. Its gross non-performing assets (NPAs) ratio - or bad loans as a percentage of gross advances - stood at 29.12 per cent against 30.78 per cent in Q1FY19 while net NPA fell to around 8 per cent from 18.76 per cent in the yar-ago period. Moreover, its capital base has steadily eroded and the capital adequacy ratio was estimated at 8.1 per cent. The operating profit of the bank also dropped by 12 per cent to Rs 951 crore in the June quarter.
Adding to the bank's woes, last week its shares plunged as much as 9.3 per cent to Rs 26.05 on the BSE after the credit rating firm S&P Global placed the private lender's unsecured debt rating on 'credit watch negative' for breaching its regulatory capital requirement. It is currently trading at Rs 26.25 apiece, down from Rs 56.5 when LIC came on board in January shelling out around Rs 20,000 crore for the stake acquisition.
Although LIC is reportedly unhappy with this state of affairs, IDBI Bank's ability to hawk its insurance products makes the deal worthwhile. LIC on Sunday said its assets have grown to over Rs 31.11 lakh crore, mainly helped by a bouquet of 32 plans under individual business. With the increased business, the market share of the insurer rose to 73.1 per cent at the end of July 2019.