[ad_1]
Outstanding public sector lender IDBI Bank has received a new lease of life from the country's largest life insurer, Life Insurance Corporation of India (LIC).
In an unprecedented move, Friday's Insurance Regulatory and Development Authority approved a proposal for LIC to hold up to 51% of the capital (versus 15%) in the PSU bank. It is currently a mountain of bad debts, representing just 30% of its overall loan portfolio.
This is not the first time the government has come to the rescue of a public sector bank. What is different, is that in the case of IDBI Bank, the responsibility for a bailout went from the taxpayers to the insured
See also: LIC will it be able to straighten IDBI Bank?
No takers among private players, the Ministry of Finance had to ask LIC to buy an additional stake in IDBI Bank, beyond the 10.8% that it already has .
The purchase of the interest will be done using funds from the account of the insurer
Although LIC has not yet provided any details on the amount of capital that will be used. it will inject into IDBI Bank, nor about its move strategy, experts suggest that the insurer will put at least 7 to 10 years to recover its investment. [19659002AfterinvestmentoptimistsreferredtotheprofitofabancelsreferedfromanotherCharterthanitwilltake3-4ansforLICaffectappropriateresolution
But infusing capital alone will not suffice.
"IDBI has a lot of legacy problems about the financing they've done.Of course, it takes capital, but the profitability is low, the badet quality is low, which erodes its capital and has to be corrected before a turnaround takes place. "Karthik Srinivasan, Senior Vice President of ICRA, told Moneycontrol
Just to put things into perspective, IDBI Bank n & # lt 39 has not reported annual earnings in the last three years. His bad debts now amount to Rs 55,588 crore, 27.9% of the Rs 1.70 lakh loans in his books
According to a report by India Ratings & Research, if all the distressed loans of the lender that are currently clbadified as standard badets The capital ratios of the state-owned lender are meeting regulatory requirements. At the end of March, its Tier 1 capital ratio was 7.42%, slightly higher than the 7.375% prescribed by the RBI.
According to a report by the ICRA, considering the expected losses of the Bank for the fiscal year 19 need a capital CET-1 of Rs 6,000-11,000 crore during the year. just year to meet regulatory requirements (including countercyclical buffers).
So while the amount of capital that LIC will invest has yet to be verified, it is clear that the insurer will have to do more than just give easy money if it wants to make its money investment.
[ad_2]
Source link
