NEW DELHI: Notwithstanding that equities in general have been on a slippery slope, the value erosion for India’s largest state-owned insurer Life Insurance Corporation of India (LIC) in one of its single largest investment last fiscal is stark. LIC increased its stake to 51 per cent in loss-making IDBI Bank to become the promoter at a price of Rs 62 a share. On Monday, IDBI shares fell to a low of Rs 24.85, down 8.5 per cent from its previous close, as the bank reported its 11th consecutive quarter of loss on Friday.
LIC had spent Rs 21,624 crore to increase its stake, got regulatory approvals from IRDAI to hold more than the mandated stake of 15 per cent in an entity, a 12-year reprieve from the RBI to cut its stake to 40 per cent. On Monday, the total market capitalisation of IDBI stood at only Rs 19,224.69 crore, less than what LIC paid. Government of India owns 46 per cent stake in the company, and the rest are with other shareholders.
There may be more pain for LIC as IDBI’s capital needs will be beefed up to meet regulatory requirements. By June quarter, its tier-1 capital and Capital to Risk Weighted Assets Ratio were at 6.14 per cent and 8.14 per cent respectively. “In total, we are planning to raise a capital of Rs 10,000 crore. Out of that, Rs 9,000-9,500 crore may either come from private placement, and some capital from monetisation of assets,” said Rakesh Sharma, MD & CEO of the bank. This would mean LIC might have to invest almost Rs 4,000-4,500 crore to hold onto its stake.
“This will help us in improving our capital adequacy ratio and we are quite sure by September 30, we will be able to raise this capital and monetise some assets,” Sharma said.
Given the kind of bad loans the bank has and the current market conditions, the question is who the other investors who may participate in a private placement for the bank to increase its capital by the end of September are.