The share price of IDBI Bank has dived 19 per cent in the last three months. But the stock rose almost 6 per cent on Friday on media reports that the Life Insurance Corporation of India (LIC) has sought the government's approval to buy a controlling stake in the crippled bank.
However, a senior official told The Economic Times today that though the government has held internal preliminary discussions over a possible infusion of fresh capital in the bank by LIC, no decision has been taken regarding a stake sale. "LIC would use that amount to capitalise the bank to maintain its capital adequacy ratio," explained the source, adding that no formal discussions had taken place and that all options are being discussed, including the issue of preferential shares allowing multiple investors, which could include LIC and other government-owned entities.
LIC already owns over 10 per cent in the infra-lender turned commercial bank. Media reports had also suggested that having failed to a get a buyer for its over 80 per cent stake in IDBI Bank, the government might ask LIC to increase its stake by at least 40 per cent, something it had done with Axis Bank in the past. In fact, back in 2015, the government had announced its intention to transform IDBI Bank on the lines of Axis Bank. In his Budget 2017 speech, union minister Arun Jaitley had even stated that the government would also consider the option of reducing its stake to below 50 per cent.
"Both IDBI Bank and LIC are independent organisations. We have left all the decisions to bank boards and we are not going to micromanage them," a senior finance ministry official told reporters on the sidelines of the two-day annual summit of the Asian Infrastructure Investment Bank today. When pressed that both the entities are government-owned, the official had quipped that it does not mean that a business relationship can't exist between two government entities.
The government has reportedly sought the views of Insurance Regulatory and Development Authority of India (IRDAI) and markets watchdog Sebi on the move. IRDAI does not allow LIC or any other insurer to own more than 15 per cent in any company. Also, as per SEBI's takeover code, if a company acquires more than 25 per cent in another listed company, it has to make an open offer to minority shareholders to buy at least 26 per cent more in the target firm.
Whatever the government decides, one thing is for sure: IDBI Bank definitely needs a helping hand. Its gross NPA soared to 27.95 per cent of its loans at March 2018 compared to 21.25 per cent at the end of March 2017, and the bank posted a net loss of Rs 5,662.76 crore in Q4 due to higher provisioning for non-performing assets. Last May, IDBI Bank became the first lender to be put under a revised prompt corrective action (PCA) for its high non-performing assets and negative return on assets. The latter has been constantly falling during the last five fiscals.
The government infused around Rs 10,610 crore in FY18 to help the bank meet its minimum capital requirements. The daily added that as of March 2018, the bank's core equity capital (CET-1) stood at 7.42 per cent, against the norm of 7.37 per cent, but fresh slippages may increase the requirement.
"IDBI will need more capital infusion and LIC can put that money towards further strengthening the bank," said the source cited above, adding, "If the insurer makes a profit on its investment at a later stage, this can always flow down to the government as dividend."
With PTI inputs