Bleeding, debt-ridden IDBI Bank gets life insurance policy — paid by LIC

IRDAI board meets in Hyderabad: The Life Insurance Corporation of India (LIC) is set to gain control over the state-owned IDBI Bank with the IRDAI approving its plan to buy up to 51 per cent stake in the debt-laden bank.

Written by George Mathew | Mumbai | Updated: June 30, 2018 7:11:33 am
IRDAI board meets in Hyderabad: Bleeding, debt-ridden IDBI Bank gets life insurance policy — paid by LIC LIC had also invested between 10-14 per cent in most public sector banks equity two years ago just before the pile of bad loans surfaced and bank valuations took a beating on the stock exchanges. (Illustration: C R Sasikumar/File)

The Life Insurance Corporation of India (LIC) is set to gain control over the state-owned IDBI Bank with the Insurance Regulatory and Development Authority of India (IRDAI) approving its plan to buy up to 51 per cent stake in the debt-laden bank amid concerns relating to the use of policyholders’ funds for bailing out a bank.

The IRDAI board meet in Hyderabad Friday cleared the proposal as an insurance company cannot hold more than 15 per cent stake in a company under the IRDAI norms. The regulator had earlier allowed LIC — which has over Rs 27 lakh crore of assets under management — to hold more than 15 per cent stake in several companies under a special dispensation under the Insurance Act.

While an official claimed that with this purchase, LIC will enter the banking sector and diversify its business — some of its key rivals have their own banks — others question the move to buy a loss-making bank riddled with huge bad loans.

Also Read | Rot in IDBI: Losses up and up, NPA mountain

Said a former IRDAI official who preferred anonymity: “LIC is using policyholders’ money to buy a loss-making bank. These are cheap funds and the government is using special provisions in the Act to facilitate the takeover with policyholders’ money. Under Section 21 of the Act, the government can give special directions to the Corporation. Under Section 43, LIC has been granted some exemptions which are not available to other insurance companies.”

In fact, the government has used LIC’s cash pile on several occasions in the past to bail out sputtering initial public offers (IPOs) of public sector firms. For example, when IPOs of Coal India and ONGC evoked a poor response, LIC stepped in with bulk purchases.

LIC had also invested between 10-14 per cent in most public sector banks equity two years ago just before the pile of bad loans surfaced and bank valuations took a beating on the stock exchanges.

Also read | Should an insurer be using policyholders’ money to buy a controlling stake in a troubled bank?

IRDAI board meets in Hyderabad: Bleeding, debt-ridden IDBI Bank gets life insurance policy — paid by LIC While the Government holds about 80.96 per cent stake in IDBI Bank, LIC has 10.8 per cent as on March 31, 2018.

When asked about the LIC takeover of IDBI Bank, a government official had said in Mumbai earlier this week, “Both IDBI Bank and LIC are independent organisations. We have left all decisions to bank boards and we are not going to micromanage them.”

While the Government holds about 80.96 per cent stake in IDBI Bank, LIC has 10.8 per cent as on March 31, 2018.

But after the government’s capital infusion of Rs 7,881 crore in May, its stake went up to 85.96 per cent in IDBI Bank.

Unlike in other public sector banks, the government can pare its stake below 50 per cent in IDBI Bank as the lender is not governed by the Bank Nationalization Act.

The LIC’s move to buy IDBI Bank has come at a time when the insurance major was seen as aggressively reducing its stake in 11 public sector banks (PSBs) which are under the RBI’s Prompt Corrective Action (PCA) framework. These include Dena Bank, Corporation Bank, Oriental Bank of Commerce (OBC) and Bank of Maharashtra.

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