By Chidambaram N
Modi the reformer on appearances is in practice a looter and usurper. The latest example is the hurried, illegal and forced buy out of ailing IDBI Bank by the Life Insurance Corporation of India. The Insurance Regulatory and Development Authority of India (IRDAI) had on June 29, 2018 given its approval to buy up to 51 per cent in debt-ridden IDBI Bank. The move to nudge LIC to acquire a controlling interest in the bank — the worst performer among state banks with gross NPAs of Rs 55,588.26 crore and a net loss of Rs 8,238 crore at the end of fiscal 2018 — appears to be one of those quick-fix solutions to try and stem the rot in the bank with no takers. As the general elections to Lok Sabha nears, Modi and Co will certainly come out with such dubious proposals, with scant respect for the laws of the country, the Constitution and the hard-earned money of the public.
To say the least, the LIC, which already has holdings in over a dozen banks and which has sold over 29 crore policies and has assets under management of over Rs 28.5 lakh crore, has a responsibility to let its policyholders know of the value proposition involved in buying a substantial stake in IDBI Bank. Is not LIC bound by law to protect its policyholders’ funds rather than the interests of the shareholders of IDBI Bank? As per the LIC Act, the corporation shall act on business principles and take steps necessary or expedient for the protection or realisation of any investment while the regulator IRDAI says that its mission is to protect the interests of policyholders besides promoting the growth of the insurance industry. The insurer’s statute also clearly says that it has a mandate to regulate the investment of funds by insurance firms.
The All India Bank Officers’ Association (AIBOA) has appealed to the President of India to intervene in the proposed move to utilise policyholder’s premium in LIC to provide capital to IDBI Ltd. A communication from AIBOA sought the President’s help in the matter in his status as the custodian of national wealth and also of the PSUs/PSBs. It has requested the President not to permit LIC to invest beyond the limit prescribed by IRDAI. Any exemption given even by the regulator would only set an unavoidable precedent, AIBOA said.
The AIBOA letter signed by general secretary S Nagarajan said that as of March 2004, IDBI Bank had accumulated NPAs worth approximately Rs 9,000 crore.
In order to recover this, the Centre had promoted a special purpose vehicle (SPV) in the form of a trust under the name and style of Stressed Assets Stabilisation Fund (SASF) and the trust deed was executed in September 2004.
A loan of Rs 9,000 crore was provided to the trust by the Centre, invested in zero interest government securities by the government of India and redeemable in 20 years. Bad loans rose from Rs 10,763 crore (June, 2014) to Rs 14,112 crore (June, 2015); and Rs 44,753 crore (March, 2017) to Rs 55,588 crore (March, 2018). This is nearly 28 per cent of the advances lent.
Also BJP leader and former finance minister Jaswant Singh had categorically assured the Lok Sabha during his term that the government shall at all times retain its shareholding at not less than 51 per cent. A week later, on the same subject, he had assured the Rajya Sabha that “…when IDBI converts into a bank after the approval of Parliament today, it will become subject to the Banking Regulation.
That is currently with the Standing Committee on Finance. And there, it is mandatory. Unless that is amended, how can IDBI shareholding be reduced below 51 per cent, wonders AIBOA.
Clause No 4 of the Memorandum of Association and Articles of Association, IDBI, reads as the central government, being a shareholder of the company, shall at all times maintain not less than 51 per cent of the issued capital of the company”.
In the same vein answering a number of questions raised in Parliament in 2015 and 2016, the Centre had consistently confirmed that there was no proposal to effect the strategic sale of equity in IDBI Bank.
The AIBOA letter urged the President to advise the finance ministry to uphold the sanctity of these assurances and also abide by the provisions of law related to capital infusion in IDBI. Equally, recovering the bad loans from the borrowers should be the priority, and for that, an effective mechanism should be put in place. The present laws brought in as amendments recently are facilitating the borrowers only and not the banks, the letter said.
Joining AIBOA, All India LIC Employees Federation general secretary Rajesh Kumar said: “We are anxious and seriously concerned about this sale. Now as a concerned and a responsible trade union in LIC, it is morally worth questioning whether IDBI Bank, a lender with humongous bad loans close to a third of its book, makes for a good investment for LIC.” It should also be noted that no private investor has shown any interest in IDBI Bank even though the government has wanted to sell equity for over two years now, he added.
Extending its concern, All India Bank Employees Association (AIBEA) general secretary C H Venkatachalam in a letter to interim finance minister Piyush Goyal, which claimed that LIC was already grappling NPA issues of its own said: “It is pertinent to point out that while investment is part of LIC’s business, it cannot be that all loss-making institutions are to be bailed out by LIC at the cost of the interest of the common people who are investors in LIC.”
Venkatachalam further stated that the onus of bailing out IDBI Bank rests on the government. “If the bad loans are on account of bad and mala fide decisions of the executives of the bank, they must be taken to task. If the accumulation of bad loans is due to change in the economic scenario and such huge infrastructure loans are bad today, the government must step in and provide additional capital.”
Opposition parties including CPI are also vociferously opposing IRDAI’s decision, which was passed at a board meeting in Hyderabad. The insurance regulator entered the picture because under current norms, an insurance company cannot hold more than 15 per cent stake in a company.
Going by their mandates, the LIC board and the insurance regulator have done the indefensible in this case — emerging as being beholden to the government when they should have examined the proposal far more thoroughly and sought time. The best course would be to call off the proposed deal failing which financial sector regulators — RBI or Sebi — should step in.
In his Budget speech for 2016-17, finance minister Arun Jaitley had said 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.” That means the government has hatched up the conspiracy well in advance, perhaps also with the aim to defame the PSUs/PSBs after forcing them to go bankrupt. (IPA Service)