LIC-IDBI Bank Deal

M G Warrier                              
 July 17, 2018
Cross-migration of resources

This refers to the report “LIC board gives nod for IDBI Bank buyout” (BL, July 17). Hopefully, other regulatory approvals necessary, for the LIC-IDBI Bank marriage to consummate, will not get delayed. Any delay will give room for hairsplitting analyses by media and legal experts about the pros and cons, sans any practical solution to the underlying problems surfacing. Public memory may be short, but there is the live example of Air India which has got admitted into the Multi-Specialty ICU of privatization lobby, with no hope of an easy exit route.  Though comparing Air India and IDBI Bank is risky, both have their common public sector tag. Air India too should have been allowed to revamp and remain within the public sector as the service the carrier has been providing will have to continue.
Last three years have been stressful for banks, government and the banking regulator. Not only because the efforts to cleanse the financial system from various chronic ills resulted in several weaknesses of the system surfacing or the rising demands on budgetary allocations to support ailing banks. The period also brought to light deficiencies and vulnerabilities in the management of institutions across public and private sectors. During this period the institutional system in the Indian Financial Sector has proved its resilience to withstand pressure and has retained public trust.
Banking being solely dependent on monetary resources, emphasis on ensuring capital adequacy, a reasonable growth in deposits base and flow of credit is natural. Sunil Mehta has arrived at a tentative figure of Rs800-900bn to resolve large toxic loans. There will be other demands, besides the likelihood of this figure too rising higher.
Extraordinary situations call for extraordinary solutions. Taking a cue from the observation that “…the returns on stressed assets are quite different from biotechnology, IT and private equity funds,” made by Sunil Mehta after submitting the report on measures to handle NPAs, GOI should consider tapping ‘idle domestic assets’ for long-term investment in the public sector.
Several individuals and organizations are holding assets in cash, gold and real estate, a part of which, if allowed to be mainstreamed and invested may partly cover the huge funding needs at this juncture. Of course, creating a national consensus and building public trust for the purpose will be a challenge worth chasing.

M G Warrier, Mumbai


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