LIC, govt's nominee plan to pose difficult questions to ICICI management

The Life Insurance Corporation of India (LIC), which holds about a 9.4 per cent stake in ICICI Bank, and the government’s new nominee on the private lender’s board have planned to ask some difficult questions at a meeting of the bank’s top management later this week. A Business Standard report notes that this comes against the backdrop of the recent developments in the ICICI Bank-Videocon case that has sharply precipitated investor confidence in the bank.

The two plan to demand an explanation, including the minutes of bank’s board meeting held on March 28 to figure out if the support from the board for the bank’s Chief Executive Officer and Managing Director, Chanda Kochhar had jumped the gun. 

It is quite clear that in the largest ever unravelling of the banking—corporate nexus in India, it has become a no holds barred season for accusations to fly from all corners. Which makes it difficult to countenance the role of LIC. India’s largest life insurance company run by the government has a huge investment portfolio. Between April and November 2017, the insurer has invested Rs 440 billion in the equities market, which is a rise of over 52 per cent over the sum for the same period a year ago. But it is unlisted, it does not make its investments public. Nor does the LIC make a particularly pretty job of making its investments work wherever it puts its money in. 

Another Business Standard report shows in the 20 state owned banks, the insurer has invested between 18.9 per cent (Corporation Bank) to 1.3 per cent (Indian Bank). But despite those investments, the performance of these banks have gone for a toss and are at the base of the current banking sector crisis. A Bloomberg Quint report noted Eleven of these banks including Corporation Bank are under the Prompt Corrective Action regime of RBI, which effectively means they cannot lend any more. LIC is not a short term holder in the equity of these banks. This means its presence in the boards of these entities for any length of of time has not shored them up. Rather the eleven banks have fallen apart under the watch of LIC and the government nominees. Yet despite all these developments the insurance regulator has recently issued a forbearance to LIC to keep its investment above the 15 per cent ceiling in these banks. The forbearance is necessary as there is no other white knight to pick up stakes in these banks. LIC is thus only a money bag and not a corporate governance specialist in the board rooms. While it was not present in the board meeting of ICICI Bank where Kochhar got the lifeline, given the track record the insurance company has demonstrated in the other banks, it is difficult to expect the presence would have made any difference. 

There is rather a larger problem. Over the decades, LIC and other government held insurance companies have made several questionable investments in equities. The political push under which those investments were made could explode in this tell all season to vitiate the environment for corrective action needed in the banks.