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Insurance cover for inefficiency?

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Insurance cover for inefficiency?
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The Central Government's moves to make Life Insurance Corporation of India (LIC) buy the majority holding of IDBI Bank have created debates in financial circles. But it appears that the Opposition has not taken this seriously enough. IDBI Bank is on the brink of a collapse with bad loans beyond the limit.

The Government is trying to put this burden - borne out of sheer inefficiency - on LIC. And the bad loans form 28 per cent. which is to say that for every 100 rupees lent by the bank, 28 rupees becomes unpaid in three months. Those who borrowed and failed to repay, and their colluders who sanctioned the loans. caused the accumulation of a colossal deficit. And to make good that deficit, the government is going to get LIC buy 51 per cent of IDBI Bank shares. The Non-performing Assets (NPA) of the bank is at a record level. The inference from this that the tendency to use public assets to rescue those public sector undertakings (PSUs) that decline in performance due to incompetence, is on the increase.

And now on top of this comes the practice of robbing the common man's pocket directly. Remember that the big names who took huge loans from public sector financial institutions and vanished, are all beneficiaries of crony capitalism. Reports surrounding those like Ambani, Adani, Nirav Modi, Essar, Mehulbhai indicate that the tycoons who collude with the government can escape, even if they have liability of billions of rupees. Even when PSU's nosedive unable to recover loans paid, the current move is not to recover them from debtors; on the contrary the attempt is to make PSU's bear that burden. A recent example is of Gujarat State Petro Corporation: when it incurred a loss of 20,000 crore rupees, Modi government transferred that burden to ONGC by making it take over that company. Now IDBI has a liability of 55,000 crore rupees by bad loans alone (as of 31 March 2018). This is in addition to another 60,000 crore rupees with scant possibility of being repaid. When it reached a stage that with the passage of time the liability will increase and the bank will sink, the way chosen by the government is not even to take it over by itself, but to trick LIC into it.

This can be called nothing but legalized fraud. At current levels, if LIC has to buy an additional 41 per cent of IDBI Bank shares (already LIC has over 10 per cent shares), it has to invest about 10,000 crore rupees. This may seem easy for LIC with its huge turnover. But the liability of the bank is sure to increase in the coming years. On every such occasion LIC, as the majority stake holder will be bound to pay up that liability. The loss of IDBI Bank in the last financial year was 5,600 crore rupees.

By involving LIC in this deal, the government is committing three types of inappriateness. First, it is against the very economic vision of the BJP. The core factor of its rightist economic philosopy is privatization. The merit attirbuted to this, along with its numerous demerits, is that it will never brook the incompetence characteristic of PSU's. But what the BJP does now is continue with the factors of privatization like the sell-off of shares against national interest, and on the other hand pass the burden of firms with huge liabilities to other PSU's. In other words, transfer profit-making entities to the private organizations, and meet the burden of loss-making entities by using funds from the state treasury.

The second issue is that this will not stop here. The phenomenon of escaping after heavy borrowals and then the public sector assuming that liability is becoming routine. This will give a wrong message, because through this, financial honesty will stand to be penalised and swindling will turn out to be profit. And thirdly, this tantamounts to betraying the trust reposed by the customers of LIC, for it will be using the money of LIC's poor depositors without his consent. The method of making a large-scale investment in a single bank will harm the interest of LIC's constituents. And in this case, the takeover involved is of a sinking bank.

Furthermore, all this will amount to legitimizing fraud in the financial sector. The move to put the yoke of IDBI on the back of LIC is, both in theory and practice, a big blunder. When the country's citizenry is subjected to such a major financial fraud, the Opposition has a responsibility to strongly resist it. Not only the government, even LIC has to be corrected, for LIC has no right, legally or morally to plunge into a definitely losing business sacrificing the interests of its customers. The deal has been given approval by Insurance Regulatory and Development Authority. Ipso facto, people do not have much time left to stop this betrayal.

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