LIC will be asked to speed up IDBI Bank acquisition process
IDBI Bank and LIC chairman did not reply to queries in this regard.
New Delhi: The finance ministry will ask LIC to hasten the process of stake acquisition in IDBI Bank, especially the valuation modalities, so that the government can ascertain if a capital infusion is needed in the ailing bank.
The government has no plans to infuse more funds into the bank and thinks LIC’s acquisition of 51 per cent stake in the lender would take care of its regulatory capital requirements.
However, if the deal is delayed over procedural issues, then the ministry may be forced to give regulatory capital to IDBI Bank to keep it floating. The ministry will shortly convey the urgency of closure of the processes and regulatory approvals to the insurer, an official said.
IDBI Bank and LIC chairman did not reply to queries in this regard.
It may take LIC one to three months to formally acquire the stake in the public sector lender. Till that time, the government has to take care of the bank’s capital requirements.
Although cabinet approval has also come for the deal, IDBI Bank is still awaiting a few regulatory clearances as well as a detailed plan and communications from the LIC board before the deal is closed.
The bank needs at least Rs 10,000 crore capital in the next three months to avert a breach of regulatory capital requirements. But LIC cannot move into the bank overnight as the due diligence process is still going on and the acquisition value and timing of investment are still undecided.
The ministry official said the deal is half done at this stage and needs closure since the financial condition of IDBI Bank is too weak.
Recently rating agency S&P warned that the bank may fail to meet its regulatory capital need and may face further deterioration in its asset quality and position.
On August 1, the Union Cabinet approved the proposal for LIC to acquire 51 per cent stake in IDBI Bank, thereby taking control of the state-owned bank.
The bank has reported a gross non-performing asset (NPA) ratio of over 30 percent as on June 30--the highest across the industry. Outstanding gross NPAs rose to Rs 57,807 crore at the end of the first quarter, up from Rs 55,588 crore in March. The slippages were at 7,800 crore.
Meanwhile, the bank’s officers union said the government should retain control of the bank till it recovers the bad loans in its books.
“We are insisting that government of India should continue to infuse the capital. We want the government to recover Rs 55,000 crore of gross NPA and should continue to hold 51 per cent stake in the bank. We have also told the IDBI management and government that the latter should not go back on their assurance. They should continue to have the ownership of IDBI Bank,” said Vittal Koteshwar Rao AV, national general secretary of the All India IDBI Officers’ Association.