ICICI Bank, on Monday (June 22, 2020) sold 1.5% stake in its life insurance arm ICICI Prudential for Rs 840 crores. This has been done to strengthen the balance sheet of the bank amid the pandemic which is expected to worsen the bad loan problems.
Last week the private-sector lender sold 3.96% stake in its general insurance arm, ICICI Lombard, for Rs 2250 crores
Rs 3090 crores have been raised by the bank now by selling stakes in its life insurance and general insurance subsidiaries.
The bank said after the approval from the board of the bank, it divested 25 million shares of face value Rs 10 each of ICICI Lombard Prudential Insurance, which represents 1.5% of its equity share capital on the stock exchange for an approximate total of Rs 840 crore.
After this transaction, ICICI Bank’s stake in its life insurance subsidiaries stands at 51.4%, and the rest is publicly held.
At the end of March 2020, the private lender had a capital adequacy ratio of 16.11%, well above the regulatory requirements.
For bad loans and coronavirus-related disruptions, the bank had made provisions of Rs 5967 crores, with an increase of 9% from Rs 5451 crores in Quarter 4 of Financial Year 2019. The previous quarter’s figures were Rs 2083 crores.
Banks are expected to face heightened stress because of bad loans. Many banks are monetizing part of stakes in subsidiaries and strategic holding to increase the capacity to absorb shocks from the economic disruptions due to the Covid-19 pandemic.
On the base case scenario, rating agency ICRA sees gross NPAs rising to 11.3-11.6% by March 2021.
The economic steps taken due to the pandemic have caused serious stress which may drive total slippages of up to Rs 5.5 trillion in the country in Financial Year 2021. The corporates may face slippages of around Rs 3.4 trillion and non-corporates including retail, farming, and MSME may account for Rs 2.1 trillion stressed loans, according to India Ratings.
Banks in India faced elevated provision pressure (amount set aside for stressed loans) resulting from the corporate stress cycle over FY16-FY20. They had made substantial provisions and were moving to a moderated credit cost cycle.
State Bank of India also divested some part of its stake in its listed life insurance arm SBI Life Insurance for Rs 1,522 crore. UK’s Standard Life also sold 1.3% stake in HDFC Life Insurance.