ICICI Bank sells 1.5% stake in ICICI Prudential for Rs 840 crore

Private sector lender ICICI Bank on Monday sold 1.5 per cent stake in its life insurance arm ICICI Prudential for 840 crore. This was done to strengthen the bank’s balance sheet in light of the pandemic that is expected to worsen the bad loans problem of the banks.

This is the second such transaction conducted by the bank to strengthen its balance sheet. Last week, the private lender sold 3.96 per cent stake in its general insurance arm ICICI Lombard for Rs 2,250 crore.

The bank has now raised Rs 3,090 crore by selling stake in its life and general insurance subsidiaries.

In a statement to the exchanges, the bank said, pursuant to the approval granted by the board of the bank, it divested 21.5 million shares of face value of Rs 10 each of ICICI Lombard Prudential Life Insurance, representing 1.5 per cent of its equity share capital on the stock exchange for an approximate total consideration of Rs 840 crore”.

Post the transaction, the ICICI Bank’s stake in its life insurance subsidiary stood at 51.4 per cent and the rest is publicly held.

Shares of ICICI Bank were trading 3.02 per cent higher at Rs 374.690, from its previous close on the BSE and shares of ICICI Prudential were trading 3.63 per cent higher at Rs 405.90 on the BSE.

The private lender had a capital adequacy ratio of 16.11 per cent at the end of March, 2020, which is well above the regulatory requirements. But the bank had indicated that due to the uncertainties arising out of the pandemic, it would strengthen its balance sheet further.

For bad loans and coronavirus-related disruptions, the bank made provisions of Rs 5,967 crore, up 9 per cent from Rs 5,451 crore in Q4FY19. Compared to the previous quarter’s figure of Rs 2,083 crore, provisions were up almost 186 per cent.

Analysts have said many banks have been monetizing part of stake in subsidiaries and some strategic holding to enhance capacity to absorb shocks from the economic disruption caused by Covid-19 pandemic. Banks will face heightened stress due to bad loans. 

On the base case scenario, ratings agency ICRA sees gross NPAs rising to 11.3-11.6 per cent by March 2021.

The stress emerging from severe economic shock caused by steps to contain COVID19 pandemic may drive total slippages of up to Rs 5.5 trillion in the country in FY21. The corporates side may see slippages to the tune of Rs 3.4 trillion and non-corporates comprising – retail, farming and MSME - may account for about 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. And they had made substantial provisions and were moving to a moderated credit cost cycle.

Recently, 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 per cent stake in HDFC Life Insurance.