Government will establish IDBI rescue as part of the Rs 9,000 crore plan

NEW DELHI: Besieged IDBI Bank It is scheduled to get a new lifeline of Rs 9,000 crore, and the government plans to pay its share of the ransom money that Life Insurance Corporation has been looking for in recent months.

While LIC, which is the majority owner of IDBI Bank, will have to cough up close to Rs 4,500 crore as its share, the government is expected to chip in with a matching contribution, sources told TOI.

The money will be released as part of the recapitalization plan of Rs 70,000 crore bank, of which more than Rs 55,000 crore has already been allocated to state lenders led by the entity that will be created through the merger of the National Bank of Punjab, Oriental Bank of Commerce and United Bank of India, which will receive Rs 16,000 crore, according to initial estimates published on Friday.

The sources said that the new IDBI support will help it overcome the last financial crisis, given that it has a large amount of unprofitable assets (NPA), which in gross terms were estimated at more than 29% of the advances on June 30 . The bank has been in red for the past 11 quarters, although the administration and the government repeatedly suggested that the worst is over. Its capital base has eroded and the capital adequacy ratio was estimated at 8.1%.

The bad show has meant that the bank faces restrictions on expansion and loans under the Rapid Corrective Action framework of the Reserve Bank of India, even with LIC, which acquired a majority stake in the government, is not happy with the state of things. After all, the insurer has already injected about Rs 20,000 crore to acquire a majority stake.

LIC has seen a significant value erosion, with IDBI Bank share price plummeting from Rs 56.5 when the stake acquisition was completed in late January to Rs 26.7 on Friday. LIC had made an open offer at Rs 61.7 to acquire a 26% stake in the erstwhile development financial institution, which has seen many twists and turns since the government decided to convert it into a universal bank at the start of the millennium.

Over the years, it has lost its expertise in offering long-term project finance and has not been able to expand its retail footprint at a brisk pace. LIC is, however, happy with IDBI Bank’s ability to hawk its insurance products, which has also prompted the lender to scout for suitors to acquire its stake in IDBI Federal, a joint venture insurance company.