Tag: LIC

LIC holds the key in Govt’s IDBI Bank stake sale

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Will the Life Insurance Corporation of India (LIC) sell a portion of its shares in IDBI Bank, just so that the Government can complete strategic disinvestment of its stake in the Bank in FY22?

Left to its own devices, the Corporation may not want to do it.

Reason: the current market price of IDBI Bank is much lower than the price LIC paid in FY2019 to up its stake in the Bank from 10.82 per cent to 51 per cent.

Also read: LIC to sell stake in IDBI Bank to ease process of disinvestment

LIC hiked its stake in IDBI Bank in FY2019 in three tranches — at ₹61.73 per share via preferential allotment in October 2018 and ₹60.73 per share via preferential allotment in December 2018 as well as in January 2019. IDBI Bank’s shares closed at ₹36.30 apiece on BSE last Friday.

In the last 14 months or so, IDBI Bank’s market price has been lower than the price LIC paid to increase its stake in the Bank.

The state-owned life insurance behemoth invested a whopping ₹21,624 crore (of policy holders’ money) for hiking its shareholding in the Bank. So, it will definitely want a good return on this investment.

Being a public financial institution, the Corporation’s investments are under the scrutiny of lawmakers. If a sale happens below the acquisition price, it will be frowned upon by the stakeholders.

As at December-end 2020, LIC and the Government held 49.24 per cent and 45.48 per cent stake, respectively, in IDBI Bank.

Controlling stake

The Government is planning to completely divest its stake in IDBI Bank to a strategic investor. But the investor may want to hold more than 51 per cent stake (higher than LIC’s stake) in the Bank. So, the only way this can happen is if the Corporation sells a portion of its stake to the investor.

Among the synergies IDBI Bank has achieved with LIC include premium collection (which gives the Bank float money), sale of insurance products (fetches fee income), appointment of LICHFL-Financial Service Ltd (LICHFL-FSL) as corporate direct selling agent for sourcing of MSME and agriculture loans and select structured retail assets (auto, personal & education Loan).

Given that IDBI Bank is reaping the benefit of its synergy with LIC, the new investor may want to continue this mutual synergy which has created a single window for customers to avail banking and insurance services.

Wiggle room

LIC may get wiggle room to pare its stake in IDBI Bank once the Bank complies with the profitability criteria (Return on Assets/RoA) to come out of Prompt Corrective Action (PCA). The Reserve Bank of India invoked PCA against IDBI Bank in 2017 in view of high non-performing assets and negative return on assets.

Under PCA, a bank’s branch expansion is restricted and lending is narrowed to relatively less risky segments to nurse it back to health.

Also read: IDBI Bank back in black, posts ₹378-cr net profit in Q3

The Corporation may be banking on a re-rating of the Bank’s stock, once the PCA tag is withdrawn, to support the Government’s strategic disinvestment in IDBI Bank.

In a way, LIC is treading on eggshells vis-a-vis its investment in IDBI Bank.

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LIC to sell stake in IDBI Bank to ease process of disinvestment

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Life Insurance Corporation of India (LIC) has agreed to shed its shareholding in IDBI Bank, a move which will give a boost to the government to completely exit from the IDBI Bank and also ease the process of its strategic disinvestment.

However, it is for LIC to decide on the quantum of stake it would like to part with to aid this process.

As on December 30, 2020, LIC holds 49.24 per cent of stake in LIC while 45.48 per cent is with the Central Government.

A senior official told BusinessLine that LIC is ready to sell shares. The government intends to complete the process in FY21-22. Keeping that in mind, amendments have been proposed in the Finance Bill 2021. The Finance Bill will be taken up for consideration and passage during second leg of the Budget Session, starting Monday.

LIC was brought in when IDBI Bank was in trouble, but now the government thinks that phase is over. Accordingly, they now want LIC to offload its holding. Initially, LIC was hesitant, as it believed that the government had to ask the insurance major to sell stakes.

Special relaxation

Clauses 152, 153, of the Finance Bill seek to amend the Industrial Development Bank (Transfer of Undertaking and Repeal) Act, 2003. Once amendments are approved, The Industrial Development Bank of India Limited shall be deemed to have obtained a (Banking) license under Section 22 of Banking Regulation Act, which will be a condition precedent to disinvestment of government’s stake in the Bank resulting in receipts to government.

In an interview to BusinessLine, Financial Services Secretary Debashish Panda had said, “as a board-run organisation, LIC has its own principles to decide about investment and sale. Whatever they do, they will do it in the interest of policy holders. So, when they are going to off load their stake, it is in their realm … I think LIC would also sense that while government is also disinvesting, it also has a mandate from the insurance regulator to bring down its holding in IDBI Bank to 15 per cent over a period of time. Now, if the government is disinvesting, this means a sizeable, strategic chunk will be available to a potential investor. It could be an attractive proposition and may fetch a better price.”

LIC taking over IDBI was made possible on account of special relaxation provided by the insurance regulator, The Insurance Regulatory and Development Authority of India (IRDAI). The regulations restrict insurer’s holding at 15 per cent stake in a single firm. Also, an insurer cannot have ownership in any non-insurance company. The Reserve Bank of India does not allow non-banking entities to have more than 10 per cent stake in a bank.

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Indian Bank to divest stake in asset reconstruction JV ASREC India, BFSI News, ET BFSI

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State-owned Indian Bank on Friday said it will divest stake in joint venture entity ASREC (India) Ltd as part of asset monetisation exercise. The bank holds a 38.26 per cent stake in ASREC (India) Ltd.

As part of the monetisation of the bank’s non-core assets, the board of directors of the bank in its meeting held on March 5, 2021, accorded in-principle approval for partial/full divestment of the bank’s stake in joint venture ASREC (India) Ltd, Indian Bank said in a regulatory filing.

ASREC is an asset reconstruction company in which Bank of India, Union Bank of India, LIC and Deutsche Bank are the shareholders.

The company was granted a certificate of registration by the Reserve Bank of India in October 2004 to carry out activities under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act 2002.

The company’s authorised equity capital was Rs 125 crore and the aggregate paid-up equity and other equity was Rs 146.01 crore as of March 31, 2019, according to its website.

ASREC acquires non-performing assets (NPAs) from the banks/financial institutions at mutually agreed prices with the objective to maximise the returns through innovative resolution strategies.

In March 2017, the finance ministry had advised the state-owned banks to prepare a list of their non-core assets and look at disposing of them at an opportune time. KPM BAL



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IDBI ties up with LIC arm for credit card, BFSI News, ET BFSI

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IDBI Bank will soon launch a co-branded card with LIC — its largest shareholder. The bank will be partnering LIC Cards Services, which is a 100% subsidiary of the stateowned life insurance giant. The move to launch a co-branded credit card is part of the strategy to work on synergies between the two organisations after LIC acquired a majority stake in the bank in 2019.

“After the stake acquisition, we identified more than 100 synergies and started working on that. Two years down the line, we have crossed 90% of the synergy lines. Both organisations have derived considerable benefits,” said Jorty Chacko, executive director, IDBI Bank.

According to Chacko, IDBI Bank has already collected Rs 700 crore premium for LIC, which is a major share in the corporation’s bancassurance business. The bank in turn gets a significant amount of current and savings account business from LIC through its agents and employees.

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LIC launches individual savings plan

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Life Insurance Corporation of India has introduced a new non-linked, non-participating, individual, savings plan which offers an attractive combination of protection and savings

The plan — LIC’s Bima Jyoti — provides guaranteed lumpsum payments at maturity and financial support to the family in case of the unfortunate death of the policyholder during the policy term.

It can be purchased offline through an agent or other intermediaries as well as online from the LIC website.

“Guaranteed additions at the rate of Rs 50 per thousand basic sum assured will be added to the policy at the end of each policy year,” LIC said in a statement on Monday.

The minimum basic sum assured is Rs 1 lakh with no upper limit.

“In the current scenario of rapidly declining interest rates, the guaranteed additions offered along with risk cover is an attractive feature in LIC’s Bima Jyoti,” the insurer said.

The policy can be taken for a term of 15 to 20 years with the premium paying term calculated as the policy term minus five years, it further said.

Loan facility is also available to meet liquidity needs.

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Three public sector general insurers lose market share in 2019-20: IRDAI report

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The market share of public sector general insurers fell to 38.78 per cent in 2019-20 from 40.52 per cent in 2018-19 although in the life insurance sector, Life Insurance Corporation of India has roughly managed to maintain its market share in the period with only a marginal decline.

“In case of public sector general insurers, all four companies expanded their business with an increase in respective premium collections over the previous year,” said the Annual Report 2019-20 of the Insurance Regulatory and Development Authority of India (IRDAI). The report revealed that the market share of three of the four public sector insurers, except New India Assurance, has decreased from the previous year.

New India grows

The market share of New India marginally increased to 14.19 per cent in 2019-20 from 14.11 per cent in 2018-19.

The market share of United India Insurance, National Insurance and Oriental Insurance declined to 9.27 per cent, 8.08 per cent, and 7.24 per cent in 2019- 20 from 9.69 per cent, 8.93 per cent and 7.79 per cent in 2018-19, respectively.

“New India, which collected direct premium of ₹26,813 crore, once again remained as the largest general insurance company in India,” it further revealed.

The market share of private general insurers increased to 48.03 per cent in 2019-20 from 47.97 per cent in the previous fiscal.

Life Insurance

The market share of LIC remained at 66.22 per cent in 2019-20 marginally lower than the 66.42 per cent in the previous year, the report showed.

The market share of private insurers slightly increased from 33.58 per cent in 2018-19 to 33.78 per cent in 2019-20.

In terms of number of new policies issued, LIC witnessed a growth of 2.3 per cent in 2019-20 while the private sector registered a decline of 4.05 per cent compared to the previous year. Overall during 2019-20, life insurers issued 2.88 crore new individual policies, out of which LIC issued 2.18 crore policies (75.91 per cent) and the private life insurers issued 69.50 lakh policies (24.09 per cent), the report showed.

Insurance penetration

Insurance penetration also increased in 2019-20 in both the life and general segments.

After a small decline in 2018 to 2.74 per cent, life insurance penetration increased to 2.82 per cent in 2019.

The penetration of non-life insurance sector in the country has gone up from 0.56 per cent in 2001 to 0.94 per cent in 2019.

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A progressive and forward looking one for Financial Services Sector, BFSI News, ET BFSI

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Sanjay Doshi, Partner and Head, Financial Services Advisory, KPMG in India

Budget 2021 looks to address some of the key pertinent issues in Financial Services sector around bad debts, asset restructuring and infrastructure financing. It has also put a focus on achieving growth and investments through divestments of government interests, increase in FDI limit and policy changes on FPI/NRI investments.Below is a sector wise deep dive on the budget announcements.

Banking: The Banking sector, especially Public Sector Banks, have been given significant support through measures around re-capitalisation to the tune of Rs 20,000 Cr, setting-up of asset reconstruction to handle bad loans and divestment of two PSU Banks. The proposal to divest stakes in two PSU banks is forward looking and will bring better focus on low performing PSU Banks, autonomy and capital optimisation. This will also lead to consolidation in banking and NBFC sector. RBI’s expected guidelines on the ownership of banks will be crucial to facilitate the same.

The proposal to setup an Asset Reconstruction Company/Asset Management company to consolidate and take over the existing stressed debt and then management of the same is a step in the right direction. This will invite interest from Alternate Investment Funds and other potential investors and help Banks in eventual value realisation. It would be required to review finer details of structure and operations of the Asset Reconstruction and management company handling the bad loans/assets.

Insurance: Increase in FDI limit to 74% in Insurance (from 49%) will help revive growth capitalisation of smaller and mid-size Insurance players. The Insurance sector may see heightened interest from foreign investors considering liberalisation including realignment of stakeholders – however the level of interest may be calibrated depending on the ability to control vs own and nature of safeguards proposed.

Suggested Amendments in the Finance Bill to LIC Act around governance and surplus distribution, will be an enabler to the Proposed launch of the mega IPO for LIC in 2021-22. This will also have a greater impact in the Insurance industry and make products of private insurers more competitive and at par with LIC with prospective affect.

NBFCs: The proposal to reduce the minimum loan size eligible for debt recovery under the SARFAESI Act from Rs. 50 lakhs to Rs. 20 lakhs will enable NBFC’s in NPA recovery especially in MSME sector.

Announcement on allocation of Rs 20,000 crore to set up of a Development Finance Institution (DFI) which is expected to fund infrastructure projects and achieve a portfolio of Rs 5 lakh crore within three years is a progressive step towards reviving infrastructure financing, given the planned infrastructure investments over the next few years.

Capital Markets: The proposed launch of a unified securities market code consolidating multiple securities related laws and creation of new investors charter is expected to be beneficial to protecting investors interests. Finer details of the proposed change would need to be reviewed to ascertain its impact on cost, efficiency and compliance process.

Click here to read ETBFSI blogs.

DISCLAIMER: The views expressed are solely of the author and ETBFSI.com does not necessarily subscribe to it. ETBFSI.com shall not be responsible for any damage caused to any person/organisation directly or indirectly.



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‘Proposed LIC Act tweaks aimed at getting insurance behemoth ready for listing’

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Budget 2021 not only had loads of goodies on the privatisation front, it also has taken special efforts to expedite the process of legislative amendments to enable the government shed stakes in both Life Insurance Corporation and IDBI Bank.

A day after the Budget was presented in Parliament, Debashish Panda, Secretary, Department of Financial Services, shared the various aspects of changes related to financial services sector introduced through the Finance Bill 2021. Excerpts:

Why use the Finance Bill to bring amendments in LIC Act?

The last Budget had announcements about LIC IPO and IDBI. The Finance Minister made announcements this time too. We had to bring necessary legislative changes. For LIC, we have brought 26-27 consequent amendments through the Finance Bill. The LIC Act 1956 did not have provisions for listing or how shares will be distributed.

In both LIC and IDBI, the Consolidated fund of India will receive the funds. So it becomes part of the money bill and to expedite the process, the changes has been put as part of Finance Bill – which is a money Bill.

Will the intent be to corporatise LIC under Companies Act or will it remain a corporation even after listing?

No, the Life Insurance Corporation of India Act will remain. The character of LIC will remain. We are only enabling compliance with listing regulations and allowing shares to be issued. We are specifying an authorised capital (₹25,000 crore from the current level of ₹ 100 crore) and detailing the Board structures etc in the amendments

How much will the government look to dilute in LIC? Will it be 5 per cent or 10 per cent?

It is for the DIPAM (disinvestment department) to take a call on this. We are looking at other aspects like getting the legislative changes done, get embedded value calculated, appointing actuarial consultants for this etc. Based on the embedded value, the enterprise value will be calculated and then listing will happen. I cannot say anything about the timing.

What was the purpose of going in for a new Development Financial Institution when you could have used an existing entity?

The proposed government-owned DFI — National Bank for Financing and Infrastructure Development — will play a catalytic role in development of the corporate bond market. It will also be a market maker and do technology-based monitoring of projects – which is missing in today’s infrastructure financing. The first pillar of this new DFI is the developmental role while financing role will be its second pillar. Going forward, the government may even look to bring down its holding, in this DFI, to 26 per cent. The new DFI Bill will also open the doors for private owned DFIs to enter this space. IIFCL can also be subsumed for a quick start as it already had domain expertise and trained manpower in this field. This new DFI will start a post Covid-19 new investment cycle in project financing. It will anchor the new ₹111-lakh crore National Infrastructure Pipeline of projects for the next five years.

Budget has proposed a new structure of ARC and AMC to deal with bad loans of public sector banks (PSBs). Will government put money in these entities towards capital?

The government will not and has no plans to put any equity in the new mechanism. It is for the banks to come together and set them up. The bad assets will get transferred from the banks to the ARC entity at net book value (book value-provision made) and as consideration for this 15 per cent cash and 85 per cent securities receipts will be issued.

Budget has proposed privatisation of two PSBs. Will the exiting prompt corrective action banks be eligible as candidates for privatisation?

All of them are eligible. It could be anyone from one to twelve PSBs. The three level of committees as mentioned in the recently approved policy – NITI Aayog, core group of secretaries and alternate mechanism. Also the banks that are now under prompt corrective action have been doing well in recent months and hopefully could come out soon.

Will government ask LIC to join the centre in shedding stake in IDBI Bank?

That will be for the LIC Board to take. It is not for us to determine how much and when they should sell.

So what is the purpose of bringing amendments to the IDBI repeal Act?

The main purpose is to take care of the licensing issue and how it should be dealt with if the control of the bank changes hands.

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Fourth consecutive quarter of net profit brings IDBI closer to PCA exit, BFSI News, ET BFSI

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Life Insurance Corp of India (LIC) controlled IDBI Bank expects to come out of Reserve Bank of India‘s (RBI) stringent prompt corrective action (PCA) directions at the end of this fiscal year after meeting the central bank’s last remaining parameter, CEO Rakesh Sharma said.

RBI’s PCA framework imposed on banks wih high NPAs and modest capital position, restricts banks from certain lending activities and curbs expenses to conserve funds.

IDBI has been under PCA since May 2017. The bank reported its fourth consecutive quarter of net profit in December 2020 after 13 straight quarters of losses. Sharma expressed confidence that the bank will move out of RBI’s restrictive directions after it records a positve return on assets in the end of the current fiscal.

“We are above all indicators put forth by RBI and next quarter we expect to record a positive return on assets for the fiscal year which will help us exit PCA very soon. Against a requirement of 8% core equity capital we are currently at 12.2% and against a requirement of 6% net NPA we are at 2.74% including loans which are yet to be classified as NPAs. The RoA is reported at the end of the fiscal and we are confident that we will move out of PCA after we record a positive number in March,” Sharma said.

Results released today showed that the bank reported its fourth consecutive quarter of net profit riding on higher net interest income (NII) mainly as cost of funds fell. The bank reported a net profit of Rs 378 crore in the quarter ended December 2020 from a loss of Rs 5,763 crore a year earlier.

NII or the difference between income earned on loans and that paid on deposits increased 18% to Rs 1810 crore from Rs1,532 crore a year earlier. Net interest margin (NIM) or the difference between the yield earned on loans and that paid on deposits improved by 60 basis points to 2.87% from 2.27% a year ago. One basis point is 0.01 percentage point.

With 23.52% gross NPAs, the bank has among the highest stressed loans in the industry though down from 28.72% a year ago. However with a provision coverage of 97.08% it has covered for most of its stress.

“There was some apprehension that the loans under moratorium will be high post Covid with about 5 to 6% restructured but we have been able to keep it at 2.5% of our book. Similarly, loans that are not classified as NPAs due to the Supreme Court (SC) order are less than 2% of standard advances,” Sharma said.

If not for the SC order the bank’s gross NPAs would have been 24.33% of its loans.

The bank’s income rose despite a 7% year on year fall in loan book to Rs 1.59 lakh crore from Rs 1.72 lakh crore a year ago mainly because cost of funds fell 99 basis points to 4.39% from 5.38% last year.

IDBI has made a total of Rs 436 crore of Covid 19 related provisions and separately made Rs 340 crore for restructure loans under the RBI framework. Another Rs 369 crore has been made for accounts not classified as NPAs due to the SC stay including Rs 84 crore for reversal of interest.

“We have already restructured Rs 704 crore of loans and another Rs 2256 crore is in the pipeline. So the total restructured loans are at Rs 2960 crore or 2.42% of standard assets much lower than the 5% to 6% which was expected,” Sharma said.

Going forward the bank expects a recovery in retail loans led by mortgages. Sharma said he expects retail loans to grow at 10% to 12% in the next fiscal year up from the 4% to 5% growth likely this year.



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SAT asks LIC, SBI, Bank of Baroda to develop protocols to comply with securities laws, BFSI News, ET BFSI

Personal Finance

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MUMBAI: In a firmly-worded order, the Securities Appellate Tribunal urged state-owned enterprises to form protocols to comply with applicable laws and regulations.

“It is necessary that governmental entities, including public sector undertakings, need to develop protocols for coming out from being prisoners of protracted procedures for complying with applicable laws and regulations timely, because as legal entities accountability falls on them,” the Tribunal said.

The Tribunal said that all rules and regulations should be equally applicable to every legal entity irrespective of its ownership. “Only such an approach would bring in clarity and certainty to laws and regulations and a predictable rule of law regime,” it added.

SAT’s advise takes prominence in the context of concerns that the capital market rules are not applied in the same spirit to public sector undertakings as they are to private sector listed companies.

The Tribunal was presiding over an appeal made by Life Insurance Corp of India, Bank of Baroda and State Bank of India against a Securities and Exchange Board of India (Sebi) order against them with respect to violations of certain mutual fund norms.

In August, the capital market regulator had imposed a fine of Rs 10 lakh each on the three appellants for violating SEBI’s mutual fund regulations, under which a sponsor of one mutual fund cannot hold a more than 10 per cent stake in another mutual fund.

LIC, SBI and Bank of Baroda each have their own mutual funds but also hold significant stakes in UTI Asset Management Co.

SAT has turned the monetary penalty for the three state-owned entities into a warning as it found no “justifiable” reasons to impose a monetary penalty on the violators.

“In these matters, a warning is sufficient. Further, SEBI is at liberty to impose penalty for similar violations in future,” the Tribunal said.



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