The recent sale of stake by some Indian banks in their insurance business would help in dealing with the issue of their non-performing assets (NPAs), or bad loans, and improve balance sheets, American credit ratings agency Moody's said on Thursday. Earlier this week, state-run SBI life Insurance (SBI life) completed its initial public offer (IPO) issue, while the privately-run ICICI lombard did the same last week.
“The initial public offerings (IPOs) of these banks' insurance subsidiaries are credit-positive because the banks will receive proceeds that will strengthen their loss-absorbing buffers,” Moody's Investor Services said in a note released in Singapore.
“The listings also unlock the value of the insurance subsidiaries for any future sell-down by the banks,” it said. The SBI life IPO was oversubscribed by 3.58 times, receiving bids for over 31.55 crore equity shares as against 8.82 crore shares offered. ICICI lombard received bids for over 18.35 crore equity shares, which signified an over-subscription of 2.98 times.
“We expect that SBI will use some or all of the gain to strengthen its loan-loss reserves for non-performing loans (NPls) and thereby limit pressure on its profitability,” Moody's analysts Alka Anbarasu and Jason Sin said in the note. “The gain equals about 300 basis points of the bank's NPls as of June 2017, and will more than offset the additional provisioning required for the 12 large NPl accounts cited by the central bank in a June 2017 assessment,” it added.
The RBI has identified 12 large accounts with exposure of more than Rs 5,000 crore and more than 60 per cent of which was recognised as NPAs. Following the passing of the Insolvency and Bankruptcy Code (IBC), banks have to refer to the IBC for these accounts. The accumulated NPAs of state-run banks went above a staggering Rs 8 lakh crore at the end of the last financial year.