IDBI Bank seeks capital from LIC

The penalty-laden IDBI Bank has sought further capital infusion of Rs. 10,000 crore from its new promoter, LIC. This is in addition to the Rs. 21,000 crore it received from LIC when it raised its stake in the company to 51 per cent from 8 per cent in August 2018.

IDBI Bank is burdened with gigantic losses and mounting bad loans; hence, the necessity for additional capital infusion. This request has been routed through the Department of Financial Services in the Finance Ministry.

The demand for funds comes at an inopportune moment as policyholders and employee unions alike are condemning LIC for raising its stake in IDBI Bank. They perceive the decision as a misuse of funds at the government’s behest.

LIC’s decision has invited further skepticism as IDBI Bank performed miserably for the quarter ended December 2018. It incurred colossal losses to the tune of Rs. 4,185 crore. It also showcased gross NPA ratio of 30 per cent of total advances. Although this is a negligible improvement in comparison to the previous quarter, it is still one of the highest in the industry. There is no clarity yet as to whether LIC will oblige with the request.

To make matters worse for the bank, the RBI slapped a penalty of Rs. 20 lakh on IDBI Bank for failure to comply with its regulatory directions concerning Know Your Customer (KYC) and Anti Money Laundering (AML) standards. In response, the bank has employed the necessary corrective actions to strengthen its internal control mechanisms to prevent the recurrence of such incidents.

The RBI imposed fines on several other banks including HDFC Bank, Kotak Mahindra Bank, Allahabad Bank and Bank of Maharashtra for similar reasons.

On Wednesday, the shares of IDBI Bank opened at Rs. 43.50 per share and hit a high and low of Rs. 44.20 and Rs. 42.40, respectively. The stock closed at Rs. 43.00, down 0.69 per cent.