As LIC approves deal with IDBI, policyholders worry about lifetime savings

Even as the board of public insurance company Life Insurance Corporation (LIC) approved the plan to buy 51% stake in IDBI Bank during a hastily called meeting on Monday, the 33 crore-odd LIC policyholders are on the tenterhooks.

The LIC board had already met in Mumbai on June 22 to close its yearly balance sheet for the previous year and today’s meeting was unscheduled. According to sources, the agenda of today’s meeting was to discuss the concerns of 33 crore policyholders, many of who are worried about their investments.

The IDBI Bank, established by an Act of Parliament in 1964, is faced with bad loans and non-performing assets to the tune of ₹55,600 crore, as of March 31, the highest in the industry. During the January-March quarter alone, the lender's net loss stood at ₹ 5,663 crore.

Being a listed company, IDBI Bank should give an open offer to the minority shareholders, as per SEBI norms which say that whenever the share sale goes beyond 25%, the firm needs to offer shares to its minority shareholders under an open offer. However, the practice has been disregarded in this case.

Announcing the LIC board’s approval for the deal, the Economic Affairs secretary and government’s representative on the LIC board, Subhash Chandra Garg, told mediapersons that an open offer might not happen as public shareholding was low. Though, he was quick to add that the LIC would make the open offer, “if needed.”

Now, the question is being raised on how the Insurance Regulatory and Development Authority (IRDAI) gave its approval for the deal, well in advance of the boards of the two companies assenting to the same. The IRDAI was the first to approve the deal during its board meeting in Hyderabad on June 29. Usually, the firms approach the financial regulators and the government once the approval is given by their boards concerned.

Earlier, Nilesh Sathe, member (life), IRDAI, had said on the sidelines of an event in Mumbai that the insurance regulator allowed the LIC to take over 51% stake on a condition that it has to pare down its stake in the bank over a period of time to 15%, the permissible limit for the LIC.

“The LIC has to come back to us with a specific time frame by when they can bring down their stakes in IDBI Bank,” Sathe had said.

Meanwhile, the regional labour commissioner in Mumbai has asked the management of IDBI to appear before it on July 24 to discuss the employees’ strike against the deal.

In the hearing which was held here on Friday last week, the assistant labour commissioner, Kalpana Sisodia, said that since the management of IDBI Bank didn’t appear for conciliation on the day, they had been given another chance to appear before the commissioner on July 24.

“In the meanwhile, the IDBI Bank Officers’ Association has delayed its nationwide strike on the advice of RLC,” association’s general secretary Swamy Elanjelian told National Herald. The Association was scheduled to go on a week-long strike beginning Monday.

Though Sathe has made it clear that it is going to be a case of investment and the LIC, in no way, can act as a promoter, there is no such clarification given by either of two firms yet.

Not to mention that the LIC is likely to shell out ₹ 13,000 crore to increase its stake in the bank to 51%.

Once the IDBI Bank’s board gives its approval to the deal, the matter will likely come in the annual general meeting of the bank for shareholders’ approval, which is slated for August 13.

It all shows how the government has thrown its weight behind the deal. But, the government has officially said that it was upto the board of the two entities to take the final call on the deal.

Experts have raised concerns over the manner in which other major issues have been sidelined due to government pressure to sanction the LIC-IDBI deal.

The LIC is faced with a vacuum at its top level as all the present four managing directors and chairman are set to demit their offices on superannuation by the middle of the next year.

While LIC chairman, VK Sharma demits his office in December, its seniormost MD, Usha Sangwan, will be retiring in September. It will be followed by the retirement of all the three MDs one after another. However, no process of replacement of the top officials has started yet. The executive directors at LIC, which are likely to fill up the forthcoming vacant positions, include K Ganesh, MR Kumar, Vipin Anand, Sushil Kumar, Raj Kumar and Mukesh Gupta.

Similarly, the IRDAI board, in its last meeting, which was held under its newly-appointed chairman Subhash Khuntia on June 29, threw in the cold storage all the burning issues in its hurry to approve the LIC-IDBI deal, even in absence of any such proposal coming from LIC. The IRDAI board was supposed to take a call on reinsurance regulation.

Commenting on the development, Prakash Praharaj, founder of Max Secure Financial Planners said, "LIC is a trusted brand in every village, small towns and cities. It is the custodian of small savings of the poor and middle class in our country. It is the hope for children’s education and marriage, and retirement corpus for many in this country."

“IDBI Bank is weak due to high NPAs and as such, not a good investment proposal. The IRDAI’s investment policy is aimed at protecting the policyholders’ interest. So, the policyholders’ money should not be wasted for a wrong investment,” he added.