Financial Services Secretary Debashish Panda hopes that the Bill to amend the LIC Act will be introduced during the Budget Session of Parliament. He said that LIC’s stake sale in IDBI Bank will make the bank’s disinvestment proposal more attractive. In an interview with BusinessLine, he shared his views on issues concerning the sector, including loan moratorium, and why public sector banks are not going in for equity dilution, among others. Excerpts:
Many sectors are still seeking interest waiver relief under loan moratorium. Is it possible?
The RBI has already come out with a framework for restructuring and issued detailed guidelines. The framework covers retail loans, as well as loans to MSMEs, mid-size and large corporates. It gives complete flexibility to the lender and the borrower to formulate the restructuring proposal.
For smaller loans, there will be a straight-through process, and for relatively larger loans, there will be different parameters; and even for those 26 sectors that were identified by the Kamath Committee, they have different and more liberal benchmarks.
Overall, there are a variety of reliefs being offered, such as rephasing the loan instalments, reworking repayment schedule, altering the rate of interest, waiver of penal charges or granting further moratorium. The process of availing the scheme is also very simple.
After invocation, the process of resolution needs to be implemented for all borrowers, other than large corporates, by March 31, 2021, and for large borrowers, by June 2021. Furthermore, the government has also provided ex-gratia relief on bearing interest on interest – compound interest component to a certain category of borrowers with borrowings of up to ₹2 crore.
For them as well as the remaining segments, the restructuring windows are available.
They need to go to banks and get their loan restructured if they so desire. Relief is available, and the request will be dealt with on a case-to- case basis.
Why are public sector banks not going in for equity dilution?
When you raise money, be it debt or equity, there is a responsibility for judicious deployment and generating returns. Equity dilution of capital raise through equity must be viewed through the prism of need and viability. You should require the money. Once you raise the money, it should be deployed. Businesses and individuals will avail the facility as the economy picks up.
Now the economy is showing fast recovery, so we expect credit growth to pick up, and it should be better than what it is now. If you look at home loan, personal loan or agriculture loan, all are doing well. No doubt corporate loan growth is bit subdued, that is an area of concern.
The government, industry and banks are working on that. I am sure corporate loan will gain momentum in the weeks and months to come as the demand for end products sustains. By the end of the fiscal, we expect good credit growth in all segments.
Consolidation has helped banks to improve their balance sheet, and these entities will tap the market as and when required. Canara Bank has already gone to the market. PNB has just closed its QIP. Bank of Baroda is also in line to raise money, followed by Union Bank, in the fourth quarter.
How can the concerns over higher rate of GST on the financial sector be removed?
We have received certain suggestions from banks and regulators. All of them have been consolidated and sent to the Department of Revenue for further action
How can the policy holder be assured about returns post IPO of LIC? What is the progress in the IPO process?
By way of listing, you will have more representation of policy holders also, and then it will be more open, more transparent, and there will be more people in the decision-making. That will strengthen the point, which you are making. So that fear, I don’t see coming into the picture.
As far as listing is concerned, LIC was established under a law and, over the decades, the embedded value of the entity was never discovered. Now, it is being done. Given its size, the variety of products and number of policy holders, a big and deep exercise must be carried out. There are very few consultants available in the country who can undertake this kind of exercise.
It is going to be actuarial calculation and not simple summing up of values. It is a science on which calculation is to be done to arrive at embedded valuation. DFS, DIPAM and LIC are in close co-ordination and are working on this.
The appointment of actuary is at an advance stage. Once actuarial work is done, it needs to be revalidated by reviewing actuary, which will run into parallel. Post this exercise, it is ready for pricing. Accordingly, DIPAM will plan road shows and various other activities that is required before LIC is listed.
The proposal to amend the LIC Act is also another parallel activity. Preparation of the legislation is at advanced stage. Hopefully, we will be able to take the Bill in Parliament in the next session.
It seems there is some reluctance on the part of LIC to sell its stake in IDBI Bank. How true is this?
LIC is a board-run organisation. They have their own principles to decide about investment and sale. Whatever they do, they will do it in the interest of policy holders. So, when they are going to off load their stake, it is in their realm.
But I think LIC would also sense that while government is also disinvesting, it also has a mandate from the insurance regulator to bring down its holding in IDBI Bank to 15 per cent over a period of time.
Now, if the government is disinvesting, this means a sizeable, strategic chunk will be available to a potential investor. It could be an attractive proposition and may fetch a better price