Cash-Starved India Wants to Sell Stake in Big Insurer, IDBI Bank
Prabhadevi branch of IDBI Bank. (BloombergQuint)

Cash-Starved India Wants to Sell Stake in Big Insurer, IDBI Bank

(Bloomberg) -- 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.”

Cash-Starved India Wants to Sell Stake in Big Insurer, IDBI Bank

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.”

Cash-Starved India Wants to Sell Stake in Big Insurer, IDBI Bank

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.

More financial-sector details:
  • In a speech lasting more than 2.5 hours, Sitharaman promised further liquidity to a weak shadow banking sector by guaranteeing their securities; she didn’t provide further details
  • She also extended by a year a debt restructuring program, where banks can continue to treat as ‘standard’ defaulted loans to small businesses
  • She increased insurance cover for bank depositors to 500,000 rupees from 100,000 rupees

“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.”

©2020 Bloomberg L.P.

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