Are LIC policy holders being taken for a ride?

Decks have been cleared for the Life Insurance Corporation (LIC) to acquire the lion’s share in state-owned IDBI bank following clearance from the insurance sector regulator. IDBI bank is the worst performer among public sector banks and has bad loans worth over ₹55,000 Crore.

Insurance Regulatory and Development Authority (IRDAI) gave its clearance for the deal in its board meeting held in Hyderabad on Friday. LIC is expected to invest as much as ₹13,000 Crore to acquire majority stake in the IDBI Bank.

Commenting on the development, MG Diwan, former chairman of LIC, told National Herald, “The decision may be convenient (for the government), but it is setting a bad precedence. You (the government) are using the policyholders’ money at your will.”

While the deal is being justified on the ground that LIC will now be able to control a bank like its private sector rivals HDFC and ICICI-Lombard, experts are not sure if investing the policy holders’ money in the worst performing bank is a wise decision.

While the Government has clearly arm-twisted the regulator to relax existing norms which do not allow LIC to acquire more than 15% stake in any undertaking so as to safeguard public deposits, the LIC is now saddled with a sick bank which will require regular infusion of capital from LIC policy holders for the next several years.

Curiously, LIC’s earlier bids to acquire greater stake in Corporation Bank and its bid to acquire a banking licence from the Reserve Bank of India through its arm LIC Housing Finance had come a cropper.

Experts say that no wise investor would buy stakes in IDBI Bank because it has the highest Non-Performing Assets among all banks, public and private. It has also posted heavy losses for the last three years in a row, posting a loss of ₹5,662 Crore in the fourth quarter alone. Its stressed assets comprise 28% of its total assets and for all these reasons, the Government was not able to find a buyer.

While the Government has tried to wash its hands off, nobody is fooled by the pretence. "Both IDBI Bank and LIC are independent organisations. We have left all decisions to the respective boards and we are not going to micromanage them," a senior finance ministry official was quoted as saying on the sidelines of the annual summit of Asian Infrastructure Investment Bank in Mumbai.

Ironically, when the Government sought to convert IDBI into IDBI Bank in 2003, it assured Parliament that at all times the Government would maintain not less than 51% equity holding in the new set up. On the basis of this assurance, the Bill was approved by Parliament then.

All India Bank Employees’ Association (AIBEA) general secretary CH Venkatachalam says, “While investment is a 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 LIC is also saddled with a huge portfolio of non-performing assets/investments. Forcing it to invest in a bank with huge bad loans is not a fair proposition.”

All India LIC Employees’ Federation has also opposed the government’s move to give 30 per cent stake in IDBI to LIC to keep it afloat. “Reportedly, LIC’s board has acted in accordance with the government’s wish. This will severely impact the policyholders’ interests. The step will have a huge ramification on LIC’s financial health,” the Federation’s general secretary, Rajesh Kumar said.

The IDBI bank employees have decided to go on a nationwide strike on 16-21 July, which will be followed by an indefinite strike in case the government doesn’t stop the LIC-IDBI deal.

“We are strongly protesting against the government move and hence our decision to go on the strike,” Swamy Elanjelian, general secretary, IDBI Bank Officers’ Association, told this correspondent.