Dilution of Government’s stake below 51% in IDBI Bank
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We note with legitimate concern from the reports appearing in the media that the Union Cabinet had given is assent to the proposal of Life Insurance Corporation of India to acquire 51% of controlling stake in IDBI Bank. The decision of the Cabinet will result in Government of India’s stake getting diluted from 85.96% to 43% having definite bearing on the mandated Development Bank role and character of the Bank as defined in the IDBI (Transfer of Undertaking and Repeal) Act, 2003.
We deem it pertinent to draw your kind attention to the solemn assurance given by the then Hon’ble Finance Minister of the NDA led Government of latae Shri A B Vajpayee on the floor of Lok Sabha on 8.12.2003 and Rajya Sabha on 15.12.2003 that the Government shall, at all times, maintain not less than 51 % of the issued capital of the Company. This categorical assurance of the Hon’ble Finance Minister formed the very basis for the withdrawal of the motion moved by the Opposition parties in the matter and ultimate passage of the IDBI Repeal Bill, 2002.
Subsequently, Government of India also formally confirmed to the Committee on Government Assurances that the above assurance has been complied with by incorporation of relevant provisions in Clause 4 of the Articles of Association of IDBI Bank to the effect that “The Central Government, being a shareholder of the Company, shall at all times maintain not less than fifty-one per cent of the issued capital of the Company.”
Also, relying specifically on the strength of the above assurance, the Reserve Bank of India categorized IDBI under Sub-group :Other Public Sector Bank and the Department of Financial Services, Ministry of Finance vide its communication dated 31.12.2007 to all Ministries and Government Departments concerned notified that for all purposes IDBI shall be treated on par with Nationalised Banks/ State Bank of India.
In the above circumstances, the present decision of the Union Cabinet to accord approval to LIC of India for acquire 51% controlling stake in IDBI Bank having consequential effect of Government diluting its shareholding to below 51% is against the solemn assurance given by the Government in December 2003 and is inconsistent with provisions contained in Clause 4 of the Articles of Association which was specifically incorporated because of the assurance given to the Parliament.
While we do appreciate that IDBI Bank needs infusion of adequate fresh capital, we feel that the means being adopted by the Government of India is not the panacea. Internal generation of funds by recovery of Non-Performing Assets adopting stringent punitive measures alone will address the issue of capital requirements on long term basis.
The main problem in IDBI Bank is the growing bad loans of the big corporate and business houses. Because these huge bad loans are not being recovered, rather all types of concessions are being given, the profits earned by the Bank are going towards making provisions for these bad loans.
Rs. In crores
Operating Profit,Provisions for bad loans,Net profit / loss, Gross NPA
2011-12 4,056 2,024 + 2,031 4,551
2012-13 5,458 3,576 + 1,882 6,450
2013-14 5,681 4,560 + 1,121 9,960
2014-15 5,778 4,855 + 873 12,685
2015-16 5,370 9,035 - 3,665 24,875
2016-17 4,579 9,737 - 5,158 44,753
2017-18 7,905 16,143 - 8,238 55,588
From the above, it can be observed that the Bank has been performing well but only due to piling up of bad loans, higher provisions have been made and consequently, the entire profits of the Bank have been eaten away by provisions and for the past three years, the Bank is in net loss.
In the last 7 years from 2012 to 2018, Rs. 24,226 crores of loans of the big borrowers have been written off by the Bank.
When the entire profit of the Bank is going towards provisions for bad loans, the Bank is suffering from loss, inadequate capital, etc., Government should take tough measures to recover the bad loans, fix accountability for the bad loans and in the meantime, extend capital support as assured to the Parliament.
As dilution of its shareholding below 51% and permitting LIC of India to acquire controlling stake in IDBI Bank is inconsistent with the spirit and intent of the IDBI (Transfer of Undertaking and Repeal) Act, 2003, we convey our unequivocal protest against the decision of the Union Cabinet in the matter and fervently urge upon the Government of India to rescind its decision in the light of our foregoing submissions.
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