Rating agency Moody’s has placed IDBI Bank’s long-term ratings under review for upgrade following LIC’s intent to acquire a 51 per cent controlling stake in the ailing public-sector lender.
The review would focus on the exact amount of fresh capital that Life Insurance Corporation of India (LIC) plans to infuse and its impact on the capital adequacy of IDBI.
The review would also consider any regulatory limitation on LIC for providing further support and raising its stake above 51 per cent, Moody’s said in a statement.
Moody’s will consider LIC’s relatively strong credit profile, its controlling ownership and the reputational risks involved in case IDBI Bank fails. The assessment would also factor in the relatively low strategic importance of IDBI to LIC, and the fact that the investment would be funded by policyholder funds rather than LIC’s own funds.
The use of policyholder funds for this investment means that LIC’s authority to make investment decisions is constrained by IRDAI guidelines.
LIC had to obtain a special exemption from insurance sector regulator IRDAI for buying a stake in IDBI, as insurers are prohibited from acquiring more than 15 per cent of a company when investing policyholder funds.
Currently, Moody’s assumes a ‘very high’ level of support from the government for the bank, in line with that for all Indian public sector banks.
Moody’s assumes that the government will support all public sector banks in equal measure as the failure of any of them would pose a significant risk to the stability of the banking system. courtesy business-standard