Days after Finance Minister Nirmala Sitharaman announced a mega-merger of banks, Centre on Tuesday approved recapitalisation of IDBI bank with a capital infusion of Rs 9,000 crore from the government and Life Insurance Corporation (LIC).
The infusion comes on the back of the IDBI bank reporting stress with a net loss of Rs 3,800 crore in the first quarter of the financial year 2019-20 and put on credit watch by rating agency S&P Global last month.
Announcing the decision, Union Minister Prakash Javadekar said, “Cabinet has cleared recapitalization of IDBI Bank with a one-time infusion of funds by both government and LIC (Life Insurance Corporation). It will help both IDBI and LIC and shows the government’s commitment to take banking to a sound level.”
Last week IDBI’s shares plunged as much as 9.3 per cent to Rs 26.05 on the BSE after the credit rating firm S&P Global placed the private lender’s unsecured debt rating on ‘credit watch negative’.
Earlier, the finance minister had announced a capital infusion of Rs 70,000 crore to the public sector banks. This fund infusion was announced in the Budget, but instead of funds being infused in installments, these will now be provided immediately to the banks, enabling them to lend up to Rs 5 lakh crore more to the economy. The government is working with the banks to ensure that lending rates are lowered in line with the reduction in policy rates by the Reserve Bank of India.
Sitharaman had chaired a series of meeting with industry leaders, bank representatives, Ministry officials, and PSU chiefs to discuss issues impacting the economy. She had also held a review meeting with the Prime Minister on the state of the economy.