Letter to BS: Deal between LIC and IDBI Bank raises many questions

Apropos “In RBI’s Court” (July 3); appreciate the plain speak. This editorial should set the Reserve Bank of India (RBI) thinking — and take a prudent decision in the matter. It is indeed shocking that Life Insurance Corporation of India (LIC) has been given a go ahead in this matter. 

IDBI Bank is very sick. Losses of Rs 25 billion — and counting — in one year is frightening. As on date, the total loss figure may well be around Rs 70 billion. That their “capital adequacy ratio is perilous” — despite the government having infused Rs 100 billion makes it terminally sick. Palming off a sick institution to a state-owned insurance company would be unjust. It could well be the last straw for LIC, before the venerable institution itself starts going downhill. LIC already seems to have become a favourite parking place for government-owned sick assets under the thin veil of disinvestment. 

Holding stakes in 21 public sector banks and losing in 18 of them in the last two-and-a-half years should be reason enough for LIC to not buy any more of rotten eggs. With loud and clear signs of failure, IDBI Bank most certainly does not qualify to be bought over by LIC — arguably the most secure institution for tens of millions of middle-class Indians. Acquiring this “asset” is not only an unnecessary burden for LIC, it is a sure recipe for disaster. Mounting loses, 36 per cent non-performing assets, consensus that it will not be able to turn around in the near future; what more damning forecast does the LIC need to stay far away from this disaster. 

The RBI must not only turn down the suggestion assertively, it must also pass strictures on Insurance Regulatory and Development Authority of India for having cleared this proposal. That LIC’s insolvency ratio has fallen from a healthy 2.27 to barely above the minimum requirement of 1.5 — in less than nine years — is an obvious proof of what misadventures it has undertaken, or has been forced to undertake. They must not be allowed to continue on this disastrous path. 
Krishan Kalra Gurugram

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