State-owned lender IDBI Bank on Monday informed stock exchanges that Life Insurance Corp. (LIC) of India now owns 14.37% stake in the bank, after a preferential issue of shares last week. The life insurance behemoth previously owned 7.21% in the bank, which transferred 7.16% equity stake or 15.87 crore shares to LIC on 23 March. With this transaction, IDBI Bank is now the second largest bank holding for LIC. As on 31 December, the insurance provider owned 21.22% stake in Corporation Bank, the highest equity it holds in any lender. Apart from these two, LIC owns 14.36% stake in UCO Bank and 13.75% stake in Canara Bank, at the end of the third quarter. The government directly owned an 80.16% stake in IDBI Bank as of 31 December. On 20 February, IDBI Bank’s board had approved the bank’s plan for a preferential issue of capital to LIC, aggregating up to Rs.1,500 crore. Earlier this month, the state-owned lender had stated that it plans to raise Rs.19,000-20,000 crore worth of equity capital by March 2019, through all available options such as qualified institutional placements (QIPs) and preferential allotment to large strategic investors. Apart from this, the bank will also try to raise debt capital worth Rs.4,000 crore by issuing tier-I bonds and Rs.8,000-9,000 crore through tier-II bonds during the next three years. On 21 March, Mint had reported that the International Finance Corp. (IFC), US-based private equity firm TPG Capital and UK’s development finance institution CDC Group are all in talks with the government to buy stake in IDBI Bank. Finance minister Arun Jaitley, in his budget speech last month, said that the government will consider ceding control of IDBI Bank, reducing its stake to less than 50%. The plans to raise capital will be essential for IDBI Bank which is trying to shore up funds to cover for the large amount of provisioning for bad loans on its books and for growth needs. IDBI Bank’s capital adequacy ratio (CAR)—the ratio of bank’s capital to its risks—as on 31 December stood at 13% as against 12.23% a year ago. Banks have to maintain a minimum CAR of 9.625% as on 31 March 2016, according to the guidelines on the implementation of Basel III norms issued by the Reserve Bank of India (RBI). At the end of the third quarter, the bank’s gross non-performing asset (NPA) ratio stood at 8.94%, higher than 6.92% reported as on 30 September. Net NPA ratio stood at 4.6% as on 31 December, as compared with 3.16% at the end of the second quarter. An asset quality review of RBI had recently asked banks to recognize weaker assets as bad loans and make provision for it. This took a toll on the profitability of public sector banks in the quarter ended 31 December 2015.
Source: MintLIC increases stake in IDBI Bank to 14.37%
Industry: Banking 2016-03-29
