For LIC, the bank continues to be a sinkhole, requiring capital infusion at regular intervals just to stay alive.
As of June-end, the bank’s Common Equity Tier-1 capital, including the countercyclical buffer, was a measly 5.9% against a regulatory minimum requirement of 8%. Total capital adequacy ratio was 8.14% against a regulatory requirement of 9%.
The lender’s capital ratios had improved in December briefly when the government and LIC had infused capital. LIC’s infusion went towards provisioning for toxic loans, which have since then only increased.
The lender hasn’t been able to recover from its crippling toxic loan pile.
For the June quarter, the bank’s toxic loans increased and, as a percentage of loan book, were a massive 29%. After providing for toxic loans, too, net bad loan ratio is 8%.
Essentially, 8% of its stressed loan book is naked, without any insurance.
Its loss has widened from the year-ago period and it still has a negative return on equity.
IDBI Bank has had to rely on big write-offs to bring down its gross bad loan portfolio as recoveries remained low.
The lender continued to shrink its loan book and has increased the share of retail loans to avoid more risk. But even as its peers boast retail loan growth of double digits, IDBI Bank has grown its book by just 4%.
It is clear that for LIC, IDBI Bank is largely a distribution channel for selling insurance policies. The life insurer has entered into multiple agreements with the bank to hawk its policies and provide payment and settlement support. It is unclear how much improvement the network will have on LIC’s market share. The largest life insurer has been losing market share hand over fist to private sector firms over the last several years.
As the largest shareholder, LIC will have to keep infusing capital into the bank for it to stay afloat.
Meanwhile, IDBI Bank’s stock has dropped 55% so far in 2019, a direct reflection of its tattered balance sheet. The lender continues to be under Prompt Corrective Action (PCA) scheme of the regulator, which puts restrictions on lending. Considering its worsening metrics, the exit from this scheme looks distant.
Life under PCA would mean business growth will be muted and the road to recovery will be long. For LIC, this would mean a constant drain on its funds
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