Some of the synergies that were foreseen included:
- Cross-selling of LIC’s insurance products via the bank’s branches.
- Tapping LIC’s wide distribution network, which includes over 10 lakh agents, to cross-sell the bank’s products and services.
- Make IDBI Bank a primary bank for LIC for extending banking services, such as deposit and current account facilities, and cash management services.
- Cross-sell IDBI Bank’s retail loans to LIC’s customers, active agents, and employees.
- Extend broking, investment and advisory services to LIC on its future acquisitions and sell-offs.
Except for becoming its largest bancassurance partner, none of the other synergies really worked out as was expected, the official said.
IDBI Bank, he said, wanted to become a primary banker to LIC. That did not happen to the desired extent as LIC’s senior management did not have enough hold on the banking arrangements of their regional offices, the official quoted above said. Considering it is a public sector behemoth with over 2,000 branch offices, most of its regional heads continued their existing relationship with other banks, despite the senior management’s nudge to move their accounts to IDBI Bank.
If LIC wanted, it could have worked to strengthen the business linkages and work on new ones, such as a cards business that was also a part of our discussions, the official said. “But their executives never engaged themselves into the bank’s operations, and were only present for the board meetings,” he said.
Another IDBI Bank official, who is still with the lender, had a different perspective. According to him, they have achieved what they set out to do. This official cites the fact that 40-50% of LIC’s premiums collected via bancassurance channels come from IDBI now. The bank is also getting current account deposits via LIC, although, this official too accepts that certain parts of LIC continue to bank with earlier partners.
IDBI Bank’s Knight In Shining Armour
While LIC appears to have seen limited benefit from the deal, for IDBI Bank it proved to be a lifesaver.
In Sep. 2018, IDBI Bank had gross bad loans equal to 31.78% of its loan book, while its risk-weighted capital adequacy was at 6.22%, much lower than the minimum regulatory requirement of 9% for banks.
It desperately needed capital, which LIC was brought in to provide.
As of the fiscal ended March 31, 2021, the lender’s gross non-performing assets were still high at 22.4% of its advances. However, the bank had a provision coverage ratio of 97% and the net NPA ratio had fallen to 1.97%. Its capital adequacy ratio is currently at 15.59%.