idbi bank: The LIC gain of the IDBI Bank case? Analysts say … NOTHING

What does Life Insurance Corporation of India (LIC) get from its majority stake in IDBI Bank? Nothing, say the badysts. It has just helped the government provide needed capital to the beleaguered lender.

"IDBI is a ragged bank.This is nothing but a bailout for the lender without any gain for LIC.In the current state of things, it will require at least three years at IDBI to achieve a certain stability, which means that LIC must bear the losses of this investment and potentially provide more for the years to come.It is difficult to find any logic for this investment, "said Udit Kariwala, Senior Analyst, Financial Institutions, IndiaRatings.

On Friday, in an unusually fast movement, India's Regulatory and Insurance Development Authority (IRDAI) approved LIC's plan to buy a 51 percent stake in IDBI Bank, exempting it from the regulatory investment ceiling of 15 percent. company. The plan provided for LIC to invest 10,000 to 13,000 rupees in installments in the state lender mired in the NPAs, to increase its stake to 51 percent from the current 10.82 percent.

Analysts are striving to find a benefit for LIC in an agreement that requires him to put more money into a bank that is under the supervision of the Reserve Bank of India (RBI) because of the deterioration of its financial health. All this without any management control for the insurance company.

"This deal looks like a bailout for IDBI Bank without considering the millions of policyholders who have invested their hard-earned money to get insurance coverage." LIC can support the market but hold a stake majority in a bank with high NPAs without management control and cross-shareholdings with other banks do not set high standards of governance, "said Kuntal Sur, financial partner and risk manager at PwC.

IDBI Bank is one of the least performing lenders in the public sector in the past two years. During the quarter ended March, the bank recorded a loss of Rs 5,662.76 crore, which is more than the loss of Rs 3,199.77 crores recorded in the quarter ended March of last year. The net NPI percentage went from 13.21% in the fourth quarter of March to 16.69% in the fourth quarter of March 2017. Non-performing gross badets jumped to Rs 55,588.26 crore against Rs 44,752.59 crore YoY.

LIC holds shares in no less than 29 public and private sector banks, ranging from 1.32% in Indian Bank to 14.26% at Axis Bank. "It is clear that other considerations are at stake for LIC to make this investment.It is as if the government was withdrawing money from another pocket to invest in this bank. There are a lot of conflicts in this deal because LIC is now the parent of a bank in which it can have debt investments.And it's not like that gives LIC a superb network. , a great CASA franchise, access to private or business customers, it's hard to find anything positive in this business, "said Kariwala.

The RBI standards state that a bank can not own more than one life insurance company. This rule seems to have been challenged as a result of this deal, as LIC could now also own IDBI Federal Life Insurance. There are questions about what will happen to the insurance company's participation in other banks. "One could argue that LIC could use a banking partner to better penetrate the growing insurance market.But if you look at the scale and size of the LIC network even this logic does not work. There is simply no synergy in this agreement – at best, it is an interim arrangement to save the government coffers before a possible consolidation of public sector lenders, "he said. Kalpesh Mehta, partner at Deloitte India The IDBI Bank share rose 10.02% to close at 54.90 rupees on Friday at BSE The government with LIC has a

about 92 percent at the bank, which means that floating stock is just above 8 percent, which prevents fair valuations for the stock.

Analysts say the only saving grace in this transaction is the fact that Rs 10,000-13,000 crore for LIC is a small amount compared to the lakhs of crores that she rolls on the stock markets. "LIC controls nearly 80 percent of the insurance market.Rs 10,000 crore for this is peanuts.This agreement fills what was perhaps the most important hole among the public sector banks and frees up Money to invest in other lenders.The government will never allow the fall of LIC, it is the only saving grace, "said Mr Kariwala.