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.
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.
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.