LIC-IDBI Bank deal: Ownership change of debt-ridden lender unlikely to affect ratings, says ICRA
The acquisition of stake in IDBI Bank is likely to be done under the policyholders accounts of LIC and hence even a 51 percent stake in the bank will not make IDBI bank a subsidiary of LIC, says ICRA
Mumbai: The change of ownership of state-run IDBI Bank is unlikely to have any significant impact on the credit profile of the lender, says a report.
Last month, insurance regulator IRDAI had given permission to state-run LIC to increase stake up to 51 percent or controlling stake in the debt-ridden lender.
Currently, life insurance major owns 7.98 percent in the bank compared with 10.82 percent as on 31 March, 2018.
"Acquisition of stake by LIC, with equally strong ability to infuse capital, is unlikely to drive the credit profile in the near-term till there is an improvement in the standalone profile of the bank," rating agency Icra said in a report. Icra has an 'A' rating on the bank.
Its head for financial sector ratings, Anil Gupta said the acquisition of stake in IDBI Bank is likely to be done under the policyholders accounts of LIC and hence even a 51 percent stake in the bank will not make IDBI bank a subsidiary of LIC.
"Being an investment in the policyholders 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 percent," Gupta said.
He said the capital infusion from LIC into the bank will offset the future losses.
He further said the intent of LIC or the government on the long-term ownership structure will be key rating drivers for the lender, going forward.