LIC forcing IDBI Bank to mis-sell insurance policies

A 51 per cent stakeholder in IDBI Bank, the Life Insurance Corporation (LIC) had asked IDBI bank to sell its policies worth Rs 200 crore by March 31 in the last financial year and Rs 10,000 crore in the next five years.

The bank sold more than 18,000 policies, accumulating the premium to the tune of Rs 50 crore on Day 1, on March 01, 2019, through all the 1,890 branches of IDBI Bank. Most of the policies were sold to low-salaried house-keeping staff, workers on contract and security guards.

“This is nothing but sheer loot of poor people’s money,” an IDBI Bank official, who did not want to be identified, told National Herald.

Also, IDBI Bank already has its own life insurance arm, IDBI Federal. As per norm, a single promoter can’t have two life insurance ventures at a time. However, after becoming the majority shareholder in IDBI Bank, LIC seems to be doing exactly that. Experts feel that this has been done under political pressure.

While talking to media recently in Mumbai, Insurance Regulatory and Development Authority of India (IRDAI) chairman SC Khuntia had said, “LIC will have to pare down its stake in IDBI Bank from 51 per cent at present to 15 per cent over a period of time.” However, he was quick to add that the regulator was yet to give the timeline by which LIC will have to pare its stake.

On February 16, 2019, senior officials of IDBI Bank were instructed by a senior official of LIC to focus on the bancassurance business of the insurer in the LIC-IDBI Bank partnership plan.

“As LIC has completed the acquisition of 51 per cent stake in IDBI Bank early this year, the bancassuarance would be main focus areas of LIC in the partnership. We are planning to launch the bancassuarance business on March 1, 2019 in IDBI Bank branches,” a letter written by a managing director of LIC said. LIC has two managing directors. National Herald is in possession of a copy of the letter.

“Our understanding with the bank is that it will bring in Rs 200 crore of premium in 2018-19, Rs 10,000 crore premium in the fifth year. The mapping of all 1,890 branches of IDBI Bank with 1,232 branches of LIC has been completed, based on the details received from each zone,” the letter read. LIC has set targets of Rs 1,000 crore for 2019-20 and Rs 2500 crore for 2020-21.

“They are not able to run their homes with their meagre monthly earnings. But they were forced to buy the policies. The Bank has mis-sold the policies,” the official said.

“It is a fit case of mis-selling because all the LIC agents put together across India could not have achieved such a feat of garnering Rs 50 crore on a single day. The bank has already made Rs 8 crore as commission from the sale of LIC policies. We want the amount to be used by the bank in buyback of its stake from LIC so as to bring down the majority shareholding of LIC in the bank,” he added.

LIC completed acquisition of 51 per cent controlling stake in IDBI Bank on January 21, 2019. The bank received total capital of Rs 21,624 crore from the insurer in the four-month period prior to formalisation of acquisition.

In February, 2019, IDBI Bank had sought another tranche of up to Rs 12,000 crore from its new owner to meet its huge provisioning requirements amid mounting losses. “The fresh support is required to cover for non-performing assets (NPAs) in the January-March quarter,” it had said.