A pedestrian walks past an IDBI Bank Ltd. automated teller machine (ATM) branch in Jaipur. Photograph: Sanjit Das/Bloomberg via Getty Images
IDBI Bank | Getty Images
Text Size:

New Delhi: Battling huge losses and high bad loans, IDBI Bank has sought an additional capital of Rs 10,000 crore from its new promoter, Life Insurance Corporation of India (LIC).

This will be over and above the Rs 21,000 crore infused in the bank by LIC to increase its stake to 51 per cent from 8 per cent in August.

The request for additional capital has been routed through the Department of Financial Services in the finance ministry, said a source who did not wish to be identified.

“The demand has been raised anticipating the provisioning requirement for NPAs for the quarter ending March,” said the source.

The demand for more capital comes at a time when the acquisition of IDBI Bank by LIC, the largest state-owned national insurer, has been criticised by policy holders and employee unions as a form of misuse of funds at the government’s behest.

The move, coupled with the dismal performance of the bank in the quarter ended December 2018, will make it increasingly difficult for India’s largest life insurer to justify its purchase of a loss-making bank, analysts said.

Scrutiny of the acquisition has increased after IDBI Bank reported a massive loss of Rs 4,185 crore in the December quarter. The gross NPA ratio of the bank also hovered at around 30 per cent of total advances and remained one of the highest in the industry despite a marginal improvement from the preceding quarters.

We are deeply grateful to our readers & viewers for their time, trust and subscriptions.

Quality journalism is expensive and needs readers to pay for it. Your support will define our work and ThePrint’s future.

SUBSCRIBE NOW

The source added that it remains to be seen if LIC will make the required infusion.

ThePrint reached the finance ministry and LIC seeking comment but there was no response until the time of publishing this report.


Also read: LIC’s plan to acquire IDBI stake hits snag as Delhi HC says act in interest of stakeholders


The acquisition

LIC completed the stake acquisition on 21 January by infusing Rs 21,624 crore into the bank in a period spanning just over four months.

After the capital infusion, LIC’s stake rose to 51 per cent while the government’s share came down to 46.46 per cent.

Capital infusion from the insurer helped the bank’s capital adequacy ratio to improve to over 15 per cent after it fell below the regulatory norm to 6.22 per cent as of September.

With gross NPAs of more than Rs 55,360 crore as of December end, the bank is trying to provide for these bad debts while ensuring that capital levels remain well above regulatory requirements.

In August, the cabinet cleared LIC’s acquisition of a majority stake in IDBI Bank according the insurer a promoter status along with management control.

The cabinet’s decision to sell a part of the government’s stake to LIC came after a series of failed attempts to attract private investors including private equity funds and international development finance institutions.

The government and LIC defended the move stating that the acquisition of the bank will expand the insurer’s distribution network and add a bank to the vast array of financial services it offered.


Also read: Selling IDBI stake to LIC is not medicine, it’s bureaucratic quackery


Subscribe to our channels on YouTube & Telegram

News media is in a crisis & only you can fix it

You are reading this because you value good, intelligent and objective journalism. We thank you for your time and your trust.

You also know that the news media is facing an unprecedented crisis. It is likely that you are also hearing of the brutal layoffs and pay-cuts hitting the industry. There are many reasons why the media’s economics is broken. But a big one is that good people are not yet paying enough for good journalism.

We have a newsroom filled with talented young reporters. We also have the country’s most robust editing and fact-checking team, finest news photographers and video professionals. We are building India’s most ambitious and energetic news platform. And we aren’t even three yet.

At ThePrint, we invest in quality journalists. We pay them fairly and on time even in this difficult period. As you may have noticed, we do not flinch from spending whatever it takes to make sure our reporters reach where the story is. Our stellar coronavirus coverage is a good example. You can check some of it here.

This comes with a sizable cost. For us to continue bringing quality journalism, we need readers like you to pay for it. Because the advertising market is broken too.

If you think we deserve your support, do join us in this endeavour to strengthen fair, free, courageous, and questioning journalism, please click on the link below. Your support will define our journalism, and ThePrint’s future. It will take just a few seconds of your time.

Support Our Journalism

5 Comments Share Your Views

5 COMMENTS

  1. The way present Govt is using LIC to bail out the sinking ship will in the long term sink the LIC. We are seeing the erosion of faith of the Public. Latest IRDA data clearly shows that premium income is dipping. The top management of LIC is just passing time & dancing to the tune of Modi. IL& FS is another classic example of loot if the public money

  2. Lic top management is spineless and greedy.LicBoard members are greedy for plum posts in finance ministry after their tenure in LIC. Hence,they don’t bother about decent returns to policy holders and happily are misusing LIC funds. Even if IDBI wants another 40000 crores ,lic board will provide without any protest just to be in good books of finance minister. Further,LIC will concoct stories like business synergy,greater customer reach etc etc…
    LIC expects people are fools to buy their stories..
    I pity poor employees of LIC and LIC agents who toil day and night to build the organisation….only to see that their hardwork simply getting withered due to greediness of top brass.

  3. What a tragic diversion of what is ultimately the money that belongs to policyholders. LIC and ONGC are being bled of all vitality, at this rate they will be reduced to rumps. Other achievements one cannot judge, but on the economy, the Report Card reads : F.

  4. सरकार नाक का कान और कान का गाल को लगा कर समाधान निकालने की बेकार कोशिश कर रही है और जनता का पैसा बर्बाद कर रही है

  5. LIC has been milked like the “Kamadhenu” cow by Modi government. I wonder how strong that institution itself is as on today. IDBI is proving to be another Air India.

LEAVE A REPLY

Please enter your comment!
Please enter your name here