Following the announcement of a mega-merger of banks by Finance Minister Nirmala Sitharaman, Centre on Tuesday approved the recapitalisation of IDBI bank through capital infusion of Rs 9,000 crore from the government and Life Insurance Corporation (LIC).
This comes after the IDBI bank reported a net loss of Rs 3,800 crore in the first quarter of financial year 2019-20. The bank had been put on a credit watch by S&P Global rating agency last month.
Union Minister Prakash Javadekar, while announcing the decision, 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 9.3 percent to Rs 26.05 on the BSE as the S&P Global had marked IDBI bank’s unsecured debt rating as ‘credit watch negative’.
Nirmala Sitharaman had earlier announced a capital infusion of Rs 70,000 crore to the public sector banks. Although these funds were to be infused in instalments as announced in the Budget, they would now be provided immediately to the banks to enable them to lend up to Rs 5 lakh crore more to the economy.
The decision has been taken so that lending rates are lowered in accordance with the reduction in policy rates by the Reserve Bank of India (RBI).
FM Sitharaman has been holding several meetings with industry leaders, bank representatives, Ministry officials, and PSU chiefs to discuss issues impacting the economy. Meanwhile, she also held a review meeting with Prime Minister Narendra Modi on the state of the economy.