Opaque IDBI bailout plan puts LIC in spot of bother

It will be startling to spend as much as $1-2 billion and yet leave nobody satisfied. That’s exactly what appears to be the preliminary outcome of the proposed IDBI-LIC stake sale deal.

Published: 26th June 2018 03:54 AM  |   Last Updated: 26th June 2018 03:54 AM   |  A+A-

Life Insurance Corporation of India

Image used for representational purpose only. (File photo | Reuters)

By Express News Service

MUMBAI: It will be startling to spend as much as $1-2 billion and yet leave nobody satisfied. That’s exactly what appears to be the preliminary outcome of the proposed IDBI-LIC stake sale deal.Analysts are frowning over the prospects of LIC picking up 30-40 per cent government stake in IDBI Bank, simply because the bailout deal has many losers than winners and because there’s no way of spinning the math to reverse the outcome.

The government was unhelpful keeping the lid tight on its thought process behind the move with officials evading direct responses.“Both IDBI Bank and LIC are independent organisations. We have left all the decisions to bank boards and we are not going to micromanage them,” a finance ministry official told reporters here on Monday. There’s no official word yet but reports suggest IDBI’s 30-40 per cent stake may be valued at Rs 10,000-11,000 crore ($1.5-$2 billion).

Worryingly, more than a quarter of IDBI’s loan book has turned bad — a level last seen by the sector in 1960s — and the lender needs an urgent whip-round to meet its regulatory capital. It already received over Rs 10,000 crore as part of bank recapitalisation plan, but any additional infusion will pinch the government coffers.Roping in a strategic investor (LIC) will reduce the burden of pumping in cash, but sources say this may not bode well for the state-run life insurer.

“LIC is losing out market share gradually to private players and may want to exercise caution on its future investments,” a senior official of a private life insurance firm told TNIE.It’s not even that LIC has enough room to mop up additional stake in IDBI, where it already holds 10.8 per cent as of March 2018, while the government holds 81 per cent stake. Following the capital infusion in May, government stake will inch up two per cent to 83 per cent, while LIC’s could reduce to eight per cent. Going by the prevailing Irdai norms mandating not more than 15 per cent equity holding in companies, LIC has room to pick up an additional seven per cent in IDBI.Considering the uncertainty, IDBI Bank shares fell 1.44 per cent and closed at Rs 58.20 on the BSE on Monday.

Not a rosy picture
IDBI Bank has one of the highest NPA ratios among public-sector banks, at 28 per cent. In absolute terms, gross bad loans stand at Rs 55,588.26 crore. The state-owned bank is under the RBI’s prompt corrective action and is also facing a CBI probe over a Rs 600-crore loan fraud case

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