At a time when Life Insurance Corporation (LIC) is moving ahead to buy majority stake in IDBI Bank, it has emerged that the state-run insurer has lost money in 18 out of 21 public sector banks investments in the last two and a half years. According to an analysis done by the Business Standard, LIC had equity investments of over 1 per cent in 21 PSBs, but only three of them are now trading at a higher stock price than their prices at the end of December 2015.
The banks where LIC's investments are in green are Indian Bank, Vijaya Bank and the State Bank of India (SBI). In all, the government-owned insurance major's investment in state-run banks are down by 8 per cent in value between December 2015 and March 2018.
The analysis found that the sharp erosion in the value of LIC's investment happened after the RBI asked all the banks - after asset quality review - to recognise bad loans from December 2015. Since then, Dena Bank, UCO Bank and the Bank of Maharashtra have lost more than 60 per cent of their value, the report said.
However, the BS analysis shows that the value of LIC's investments in private sector banks has gone up by 50 per cent. Among the banks who contributed the most in this growth are HDFC Bank (shares up by 50 per cent) and YES Bank (up by 134 per cent). LIC owns 14.2 per cent in PNB, 13 per cent in Corporation Bank and 10 per cent in Allahabad Bank. The insurer has 10 per cent stake in three banks - IDBI, Syndicate and Central Bank of India.
The findings are in line with the opinion of those market analysts who believe that the LIC's investment in IDBI Bank will gain nothing for the insurance major.
Last week, the Insurance Regulatory and Development Authority of India permitted LIC to acquire up to 51 per cent stake in IDBI Bank. If the deal goes through, the bank will get a much-needed capital support as it is grappling with mounting non-performing assets. In Jan-March quarter, the bank reported a net loss of Rs 5,662.76 crore due to higher provisioning for NPAs.
According to reports, LIC is expected to invest up to Rs 11,000-Rs 13,000 in several tranches in IDBI Bank. The insurer will not get management rights on the board of the bank.
Last year, Union Minister Arun Jaitley had informed the Parliament that the process of transformation of IDBI Bank has already started. "Government will take it forward and also consider the option of reducing its stake to below 50 per cent," he had said. Currently, the government holds 81 per cent stake in IDBI Bank.