With already 55000 crore of toxic assets and cumulative loss of Rs13396 crore for FY17 & FY18, IDBI Bank’s bailout plan via LIC by the government is completely a wrong move.
LIC, the largest insurance company in India has been
continuously investing in various stocks over the years. Be it consumption
stocks like Gillette India, Asian Paints, Castrol India & Indraprastha Gas.
LIC has invested in almost every divestment programme of the government and it
also holds stake in every major PSU bank. Now out of 21 Public sector banks, 11
are under PCA (Prompt Corrective Action) framework. Out of which two banks (Dena
Bank & Allahabad bank) have been asked by the RBI to stop lending & taking
fresh exposures.
With almost 10 Lakh crore NPA cumulatively of all banks, 8.9
Lakh crore reported by PSU banks.Do you think LIC who will be the promoter of the IDBI Bank after getting
approval from government and various other stake holders will bring IDBI Bank
back to its glory days?
The government wants LIC to become the promoter of IDBI
Bank, the bank in which 55000 crore loans are toxic and another 60000 crore are
on the verge of being stressed. It will be no easy task for the government and
the RBI to bailout IDBI Bank especially government’s recent divestment
programme of Air India which found no buyers and the all the efforts by the
government went in vain.
How many times and by how much amount LIC will infuse capital into IDBI? LIC, which has almost a balance sheet of 30 Trillion outstrip that of IDBI but it doesn’t mean government can use that money to bail out a sick bank which has been handled by unstable top management who has been facing corruption and money laundering charges.
Undoubtedly, it has the largest market share in its domain but still it has been losing market share to all the incumbents and the new entrants who have been coming wooing young aspirational youths by bringing out new plans every month or might be every fortnightly. For Example – ICICI Prudential has been selling one of its term plan of Rs 1 crore for just Rs 490 per month or Rs17 approx. per day.
Do you think that it is fair on the part of the government to use public money to flow into toxic assets? Does government take guarantee that after capital infusion in IDBI Bank by LIC, the bank will cut down its losses and will report profits every quarter? It is like government is asking elder brother (LIC) to take care of its offending sibling (IDBI).
IDBI stake sale to LIC is like sanctioning loans despite knowing that all amounts which we are sanctioning currently will get write off from our balance sheet completely after 2-3 quarters. Too much exposure of this will hurt in its own balance sheet and it will be a new and bigger problem for the government as compare to the current problem of IDBI Bank. What is the better solution then? Perhaps, transferring its core stressed assets to a bad bank (which government is planning to introduce ) or private run ARCs ( Asset restructuring Company ) can be the answer.
