How did an insurance company that has no major prior experience in handling banking business end up taking over one of the worst performing banks in the country? Beginning with the UPA-era, the center has been scouting for potential buyers for smaller state-owned banks to push ahead with their privatization agenda. This was after several experts, including the P J Nayak committee, had recommended that the government exit its majority stake in state-run banks to kick off the next round of banking reforms. Yet, nothing worked as there was no special interest from the private sector to take ownership of badly governed, inefficient and NPA-ridden state-run banks. Various programmes announced to set things right in the public sector banking (PSB) space only helped to make headlines but the structural problems remained the same.
The hunt for potential buyers continued after the Narendra Modi-government took over the baton, but it too did not meet with any success. With no interest coming from private investors, the government turned to its favorite milch cow, LIC and asked it to do the job. The insurer, with no significant prior experience in dealing with complex banking operations, agreed to take a majority stake in one of the worst performing banks in the country with total NPAs (non-performing assets) amounting to close to 30 percent. That’s how one can sum up the LIC-IDBI deal.