Concerned over IDBI Bank stake sale to LIC, say insurance and bank staff

On Friday, the Insurance Regulatory and Development Authority of India (IRDAI) allowed LIC to buy up to 51 per cent stake in IDBI Bank.

Written by George Mathew | Mumbai | Updated: July 2, 2018 7:21:21 am
Concerned over IDBI Bank stake sale to LIC, say insurance and bank staff The IRDAI board meeting in Hyderabad on Friday cleared the proposal as an insurance company cannot hold more than 15 per cent stake in a company under the IRDAI norms. (Illustration: C R Sasikumar/File)

The government’s move to sell its stake in IDBI Bank to Life Insurance Corporation (LIC) has met with stiff resistance from employees of the insurance and banking sectors, who have questioned the rationale of investing in a bank which is weighed down by huge bad loans and losses.

“We are anxious and seriously concerned about this sale. Now as a concerned and a responsible trade union in LIC, it is morally worth questioning whether IDBI Bank, a lender with humongous bad loans close to a third of its book, makes for a good investment for LIC,” said Rajesh Kumar, general secretary, All India LIC Employees Federation.

“Given the precarious situation of Non Performing Assets (NPAs) in IDBI Bank and the intention of LIC to substantially raise its stake in the said bank, there is contagion risk on the policy-holders’ precious savings, which will grossly impact the capability of LIC to serve its policyholder. In the past few years, LIC has been struggling to raise the bonus on the policies,” Kumar said in a letter to LIC Chairman V K Sharma.

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On Friday, the Insurance Regulatory and Development Authority of India (IRDAI) allowed LIC to buy up to 51 per cent stake in IDBI Bank. The IRDAI board meeting in Hyderabad on Friday cleared the proposal as an insurance company cannot hold more than 15 per cent stake in a company under the IRDAI norms. For the year ended March 2018, IDBI Bank’s gross NPA rose to 27.95 per cent, up from 21.25 per cent as on March 31, 2017. The bank reported net loss of Rs 8,238 crore in 2017-18, up from Rs 5,158 crore in 2016-17.

IDBI Bank’s total stressed portfolio (including non-fund based facilities) is 35.9 per cent of total loans. Its gross NPAs at the end of March quarter stood at Rs 55,588 crore. This means that the bank will need significant amount of capital to clean up its books and maintain minimum levels of regulatory capital. “It should also be noted that no private investor has shown any interest in IDBI Bank even though the government has wanted to sell equity for over two years now,” Kumar said.

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In a letter to Finance Minister Piyush Goyal, C H Venkatachalam, general secretary, All India Bank Employees Association, said: “It is pertinent to point out that while investment is part of LIC’s business, it cannot be that all loss-making institutions are to be bailed out by LIC at the cost of the interest of the common people who are investors in LIC.”

“It is also well-known that similar to banks facing huge bad loans, LIC is also saddled with huge portfolio of non-performing assets/ investments. Instead of taking stringent measures to address this vital problem, adding further investments in a bank, which is facing huge bad loans and losses, is not a fair proposition,” he said.

Since nationalisation in 1956, LIC has been investing policyholders’ money in such a way that it first ensures the security of policyholders’ fund and then generates return on its investments, Kumar said. “They will be writing off NPAs amounting to over Rs 50,000 crore. LIC is having stake in 8-10 banks. If at all they want to increase shareholding in banks, then SBI should be the ideal bank to acquire minority or majority stake,” said an official of the IDBI Bank Officers Association.

The Congress and CPI(M) too have questioned the government’s move to allow LIC to gain control of IDBI Bank.

“If the bad loans are on account of bad and mala fide decisions of the executives of the bank, they must be taken to task. If the accumulation of bad loans is due to change in the economic scenario and such huge infrastructure loans are bad today, the government must step in and provide additional capital,” Venkatachalam said. The proceeds from the IDBI stake sale will go to the government, not the bank.

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