Employee unions in the insurance and banking sectors have written to the government against LIC's investment in IDBI Bank, arguing that the stake buy will not give any returns to the insurance company. They also warned this could eventually lead to privatisation of the bank and resultant job losses.
“We are opposing (the stake buy) because the kind of non-performing assets (NPAs) the bank has, LIC will be using policyholders’ money to clean that up. More so, it may not be able to use IDBI Bank’s real estate…While for the last 5-6 years, LIC has been struggling to raise the bonus of the policyholders...,” said Rajesh Kumar, General Secretary, All India LIC Employees Federation.
Last Friday, the Insurance Regulatory and Development Authority of India (IRDAI) permitted Life Insurance Corporation of India (LIC) to increase stake in the ailing IDBI Bank from the current 10.8 percent to up to 51 percent.
The unions of both the insurance and banking industry have written to the finance ministry, and have asked other industry stakeholders, including Indian Banks Association, for support.
“On July 14, we plan a dharna (demonstration) at several state capitals organised by the coordination committee of various unions of banking and insurance sector…Also, in the next 30 days, we would see more strike and non-strike actions,” said Vithal Koteswara Rao, General Secretary, General Secretary at All India IDBI Officers' Association.
According to him, “This is an indirect privatisation. For now, LIC will invest the capital, later its stake will be sold to a private player and in between, there is a threat that LIC may lose money given the huge bad loans of the bank. There is every possibility of not getting the returns.”
IDBI Bank's total non-performing assets (NPAs) deteriorated to 27.95 percent in March of its total loans as compared to 21.25 percent a year earlier. It also posted a net loss of Rs 5,662.76 crore in Q4, largely on the back of NPA provisions, like a majority of the public sector banks.
Last May, IDBI Bank became the first lender to be put under the Reserve Bank of India's revised prompt corrective action (PCA) for its high non-performing assets and negative return on assets. The latter has been constantly falling during the last five fiscals. Further, the state-owned lender has made losses for three consecutive fiscal years.
Rao fears that once LIC picks up a stake, it will offload the holding in the market (to private players) and the immediate fallout will definitely be on the jobs of the people working at IDBI Bank.
According to Rao, “In 1969, banks had to be nationalised…Even today, existing private sector bank managements are being questioned about their practices, and they have not even contributed much to the economy.”
Also Read: IDBI Bank will get LIC's money, but what more will it need to turn around?
CH Venkatachalam General Secretary, All India Bank Employees’ Association (AIBEA) said, “Though this will be huge savings for the government, policyholders will bear the cost. It is a bad investment for LIC…Also, in 2003 at the Parliament when IDBI became IDBI Bank, the Government had assured on the floor of the Parliament that they will, at all times, keep government holding at 51 percent."
The unions have been of the view that the government needs to strengthen the credit norms for corporates and punish them for defaulting.
According to Rao, “That is not happening. What is the role of RBI’s supervision department and Finance ministry department of financial services."
"Under insolvency, we are writing off a majority of the loans…The government has taken the dividend for all these years, big borrowers have contributed to 90 percent of the NPAs and smaller borrowers and policyholders are used to bail out. Why? Many willful defaulters have been identified, why is there no criminal action yet?" he added.
Rao went on to say, “NPA of IDBI Bank may become NPI i.e. the non-performing investment of LIC, that’s a possibility…”
Also Read: Will LIC be able to turnaround IDBI Bank?
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