ICRA expects that the change in ownership of IDBI Bank (IDBI) is unlikely to have any significant implications on the credit profile of IDBI as the existing ratings factor in the sovereign support. Hence, acquisition of stake by Life Insurance Corporation of India (LIC), with equally strong ability to infuse capital, is unlikely to drive the credit profile in near term till there is an improvement in the standalone profile of the bank.
Anil Gupta, Head – Financial Sector Ratings, ICRA Ltd, “The acquisition of stake in IDBI is likely to be done under the policyholder’s accounts of LIC and hence even a 51% stake in the bank will not make IDBI bank a subsidiary of LIC. Further, being an investment in the policyholder’s account, the stake will be transient in nature and LIC will have to reduce its stake in the bank going forward and bring it down to the regulatory requirement of 15%.”
On June 29, 2018, Insurance Regulatory and Development Authority of India (IRDAI) gave approval to LIC’s proposal to take over 51% stake in IDBI. LIC already holds ~7.98% stake (reduced from 10.82% as on March 31, 2018) post share allotment against the capital infusion by GOI in March 2018, which is proposed to be increased to 51% in the near term.
“Capital infusion to offset the future losses and supporting the growth requirements to restore the banks’ profitability will be a positive for the standalone profile of the bank. This apart, the intent of LIC/GoI on the long-term ownership structure will be key rating drivers, going forward” Gupta added.
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