Cash-starved India set to sell stake in life insurer LIC, IDBI Bank

Photo: Pixabay

Prime Minister Narendra Modi’s administration is trying to narrow its widest deficit in four years by selling stakes in India’s largest insurer and a bank.

The government will sell its remaining stake in IDBI Bank Ltd. on the stock exchanges and also plans an initial public offering of part of its holding in Life Insurance Corporation of India, Finance Minister Nirmala Sitharaman said in her budget speech Saturday. Documents show India hasn’t set aside — for the first time in at least six years — money for an injection of fresh capital into state-run banks.

Shares of IDBI Bank surged after the announcement and those of private insurers plummeted. However, investors were disappointed by the lack of measures to ease a funding crunch for shadow banks and help traditional lenders clean up the world’s worst bad-loan ratio.

“There was no big bang measure announced for the financial sector in the budget,” said Karthik Srinivasan, group head of financial sector at ICRA Ratings, the local unit of Moody’s Investors Service. “The government is trying to raise funds from financial institutions and also save on the other hand by not infusing capital into banks.”

LIC bought 51% of IDBI Bank last year, leaving the government with about 47%. That means the government could raise 1.8 trillion rupees ($25 billion) at Saturday’s price, Bloomberg calculations show. IDBI Bank’s shares surged 10.2% after the budget, the biggest gain since November.

Sitharaman didn’t say how much of LIC the government plans to sell. Given that the giant holds about $433 billion in assets — more than the whole of India’s mutual fund industry combined — even a minuscule sale would be quite large.

India has penciled in 2.1 trillion rupees from asset sales in the year starting April 1, more than double the number for the previous year.

“Target specified by honorable finance minister will come from listing of LIC and IDBI at this stage,” Finance Secretary Rajiv Kumar said at a briefing in New Delhi. “Listing will decide the valuations, we will work on that. It is essentially these two.”

Sitharaman also urged state-run banks to raise capital from the market after a string of mergers last year left four lenders holding about 56% of assets and deposits in the banking system. The government will consider recapitalizations as and when needed, Sitharaman said at the briefing.

Lack of adequate capital could constrain lenders from stepping up credit, which is expected to grow at 6.5%-7% this year, the slowest pace in 58 years.

“All in all directionally right for the sector,” Abizer Diwanji, partner and leader for financial services at EY India said by email. “But as always a lot of detailing required.”

Bloomberg

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In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

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  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.