Idbi Ltd was formed long ago – sometimes in the 50s to fund the Industrial growth of India. Never a great management, it accumulated NPA by the tons. Then it became a bank. Sure more NPA followed.

2018 Idbi bank needed a bail-out. Let us look at what can be the potential benefits of a bail-out. Ok, they are calling it a take over.

Lic will access the clients of Idbi bank, but actually it is Idbi bank which should be happy with the  access to the huge offices, clients, agents that Lic has. Just shifting the salary and commission accounts is going to be worthwhile for Idbi bank. This is stunning. Let us see how it works out in real life.

The Idbi bank has an immediate need for capital – to meet the capital adequacy needs. Obviously that will be met from the cash in the share allotment. Looks like a good deal for Idbi bank. One more advantage for Idbi bank is its rating could go up and thus its cost of borrowings could come down immediately. Also if so many agents open their savings bank account…and current accounts….their CASA should improve quickly.

What I do not like about the deal? well the Cabinet said it should be done. So Sebi gave its approval. Then Irda gave its ‘one-time’ approval. Rbi was too happy to bail out a bank.

If all the regulators behave like hand maidens of the government, and the government is a promoter of both these entities, one finds it difficult to believe that these are independent regulators

So the LIC-Idbi deal was given as a fait accompli to the regulators, who approved it. Application of mind was hopefully done by the cabinet.

Both Lic and Idbi get access to each others branches, and back end. For example if all the agents of LIc are asked to open a bank account with Idbi bank, it will put crores of CASA in its control. Idbi bank can cross sell LIC policies and earn a lot of fee income.