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IDBI Bank-LIC deal would be another case of moving money from one pocket to another: Amit Tandon, IIAS


Amit Tandon, Founder & MD, IIAS, tells ET Now that the government needs to take a hard look in terms of whether banks like IDBI should be allowed to continue as standalone entities or not.

Edited excerpts:

Every time when PSU banks are given a recap, we start talking about the tax payers money. With this 40% consideration, what will be your initial thought? You will get more such stake buys from LIC and some of the other insurance players. Of course, LIC is the largest. So, probably the maximum amount would come in from them?

This certainly is a worrying development if it is true because we are seeing for the last three or four years that each time the banks need to be recapitalised, the money is pumped in either directly by the Government of India or by LIC. Over a period of time, their holding in all the government owned banks has steadily been going up.

As a result, government shareholding and LIC shareholding have been going up and that of retail investors or public shareholders actually coming down. This again is not consistent with SEBI guidelines on ownership. At one level, we do recognise the need to recapitalise the banks so that the economic activity in the country can go as planned but on the other end, having LIC repeatedly come in with all these banks owning equities is not a healthy development for the market. You need diversified ownership.

The government at one level needs to consider whether we are putting in good money after bad money which seems to be the case with a number of banks. There are banks with more than 20% NPL and IDBI bank is right at the top of that pile. Should you be actually putting in this money? Remember, LIC does not have the skills to run a bank and therefore whether they would be able to provide the right leadership or guidance is also something which needs to be questioned.

There are other issues there. One of course is cap on the voting by shareholders. The Government of India can exercise its vote but LIC certainly cannot. So, you have got ownership of a company but given the restrictions on voting, not necessarily in control of the company. These are issues which have to be thought through. It seems to be that the decision has been taken in a hurry.

Earlier, we had the ONGC-HPCL deal where money got transferred because of stake. Now you are getting this IDBI Bank-LIC deal coming in – different ways for funding transfer of stake among various government entities.

It is clearly moving money from one pocket to the other and it is money which goes from tax payers. In this case, it is money which is going from policy holders. The government clearly needs to think through its strategy. If you are repeatedly having issues with a number of banks, then one has to say it is the way they are being run or the ownership structure itself which is responsible. To a large extent, the ownership structure is responsible because everyone in the system knows that the banks will get bailed out and therefore there are no hard decisions which people are willing to take in such instances.

Before I talk about merits and demerits of this proposed transaction, I want you word on the fact that this is becoming a political hot potato. We are headed into election season. Someone as influential as Ahmed Patel in the Congress party is tweeting about the story, talking against LIC picking up the government stake in IDBI. Do you think that if more opposition members were to jump on the bandwagon, they could force the hand of the government?

When something which needs to be economic or a financial decision becomes a political decision, then the waters get muddied and no one thinks clearly. You need to take a hard look in terms of whether these banks should be allowed to continue as standalone entities or not. If not, then whether they should be merged with another government owned bank by emphasising the fact that its the first step, not in the way that once have you done it, you will let it go. The second point is having said so, what will you do thereafter? I do not think anyone is spending time looking at the big picture. They are saying this is a short-term solution; let us kick the can down the road and go with what is convenient for now.

Even the markets have never liked this kind of political interference, but it is an election year and I am guessing that Ahmed Patel could just be one of the first few influential politicians to talk about this. Why is it that this time around you are seeing such a furore about the LIC coming to the governments rescue? Whether it is the NDA or the UPA before that, LIC has been repeatedly coming to the rescue of the central exchequer. We have seen a lot of disinvestment programmes from the UPAs time being rescued by LIC. If LIC indeed has this kind of cash and it is not listed — something that this government has talked about but not delivered upon — then why should not LIC be deploying the cash?

My sense is that we are slowly at the tipping point now and which is why people would say that you have got a little bit of it in the overall portfolio while it is not desirable, it is something which you can manage. They have also begun with some of the better companies but as you move down, LIC is on a fairly slippery slope. Clearly, they do not have the ability to say no in any of these instances and you can always build a narrative to say why it makes sense.

We are at a tipping point at this stage and that is why you will find that more and more people are going to make a greater noise about such developments.

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