Tag: Securities Premium Account

IDBI Bank is planning to set off accumulated losses of about Rs 44,500 crore against the balance standing to the credit of the Securities Premium Account (SPA) after the declaration of its fourth quarter (Q4FY21) financial results.

According to the Draft Scheme for setting off accumulated losses as on April 01, 2021 against SPA, this balance sheet neutral exercise of re-arrangement of liabilities will enable the bank to represent its true financial position. It will also help the bank to raise resources via AT (Additional Tier) 1 Bonds in the near future as it will become eligible to make coupon payments.

Further, this will place the bank in a better position to achieve its turnaround plan (including coming out of the so-called prompt corrective action/PCA) in a time-bound manner. The bank would also be able to pay the dividend as per the applicable provisions within a reasonable time-frame.

Divestment of Government stake

The proposed exercise of the rearrangement of liabilities comes in the backdrop of Finance Minister Nirmala Sitharaman stating – in her Union Budget speech – that the strategic disinvestment of Government’s stake in IDBI Bank would be completed in 2021-22.

The exercise, coupled with the possibility of the bank coming out of PCA, could help the Government realise better value for its 45.48 per cent shareholding.

The accumulated losses (debit balance in the Profit & Loss account) declined from Rs.45,586 crore as on March-end 2020 (as per audited financial statements) to Rs. 44,739 crore as on December-end 2020 (as per the unaudited financial statements).

The balance standing to the credit of SPA of the bank increased from Rs.49,669 crore as on March-end 2020 (as per audited financial statements) to Rs. 50,718 crore as on December-end 2020 (as per the unaudited financial statements).

The accumulated losses and the balance standing to the credit of SPA as at March 31, 2021, will be ascertained after the audited Financial Statements are approved by the Board of Directors of the Bank, per the Draft.

Realign capital-asset relationship

“Accumulated losses have wiped-off the value represented by the Share Capital of the Bank and in view of the accumulated losses, the distributable items…is negative and the Bank is not eligible to make coupon payment on AT 1 Bonds. Bank had to repay entire AT1 Bonds aggregating to Rs.5000 crore in March 2018. This is affecting the Bank’s plan to raise AT1 Bonds in the near future,” the Draft said.

Accordingly, keeping in view the future growth prospects and value addition to the bank and its shareholders, it proposes to re-align the relationship between its capital and its assets.

Life Insurance Corporation of India (LIC) is the promoter of IDBI Bank holding 49.24 per cent shareholding and Government of India is the co-promoter (without management control) holding 45.48 per cent shareholding.

In the current financial year, banks such as Union Bank of India (accumulated loss: Rs 32,758.49 crore), Punjab National Bank (Rs.28,707.92 crore), and Indian Bank (Rs 18,975.53 crores) have set off their accumulated losses against their share premium account.