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After ruining the Banking sector, now it’s the turn of the Insurance sector

It’s clearly evident from the rising graph of the Non-Performing Assets (NPA)’s and the rapid decline in the trust of the masses in our financial sector that the Banking sector in India is experiencing one of its worst times. However, something which is not evident is that what led the banking sector into such a pathetic state? At the same time, it’s extremely important to know if the Government of India (GOI) and the regulatory authority i.e. the Reserve Bank of India (RBI) took any learning’s from their past mistakes or not?

In one of my earlier blogs named “Moving towards the Cash-Less economy – Was it the right time to take this step?” I explicitly warned against the loss of trust among the common men in our banking sector. Well, the harm has already been done and ‘fortunately’ in life, there is no such feature so as to make amend any past mistakes “with retrospective effect”, otherwise our politicians are smart enough to shamelessly cover up each of their mistakes.

As a matter of fact, nothing could actually be done to rectify the past mistakes but at least some learnings could definitely be taken from them to make sure that they aren’t repeated in the future. However, even for doing this, the basic requirement is that we have to first accept it as a mistake but the irony is that our Super-Intelligent Prime Minister, the then learned Finance Minister, and the Governor of the RBI, aren’t even ready to accept that the steps taken like Demonetisation were a big blunder on their part.

So, it won’t be wrong on my part to say that somewhere it’s a blend of arrogance, immaturity, and unthinkable steps that has highly contributed towards such a state of the banking sector in India. Now, it’s apparent that the politicians have not taken any learning’s from their past mistakes, as the same cocktail is now being served in the insurance sector as well because the GOI has ‘asked’ (to be read as forced) the Life Insurance Corporation (LIC) of India to invest in the majority stake of the Industrial Development Bank of India (IDBI).

I very well know that the Chairman of LIC would straight away reject my claim of ‘being forced’ by the GOI to approve this deal. On the contrary, he is surely going to advocate that this is a thoughtful ‘profitable’ step taken “without any kind of pressure from the top”. However, we are fortunately sane enough and are blessed to have the common sense to understand what is going on inside those closed boardrooms. At the same time, unlike the Chairman, the common citizens are not being appointed by the GOI and neither the citizens are scared of the publicly chosen government to not protest against any of their wrong deeds.

I have consciously used the word ‘forced’ in that statement because why else will any insurance company invest in a bank with huge NPA’s rising at a speedy pace year-on-year and that too when there are large corpus banks in India who could have bought the shares of IDBI and would have been in a far better position to evaluate the present condition of the bank, as well as, operate it with expertise in the future? But what more could be said when the deal itself is duly approved by the insurance regulatory authority of India i.e. Insurance Regulatory and Development Authority (IRDA) of India?

I fail to understand that why do the need of an insurance company even arise at the very first place, to revive an organised sector like banking, which comprises of large Public Sector Undertaking (PSU) Banks whose control itself lies in the hands of the GOI? Is it just a simple deal or is there some hidden agenda behind this, as well? Well, the answer to all such questions obviously lies in the womb of future only.

In fact, LIC has always been the milky cow irrespective of the government in power. LIC has, at all the times, come to the rescue of the past governments as well and invested the hard-earned money of the policyholders, at times of desperate need to revive the economy. So, there is nothing new in investing in a bank with huge NPA’s as well. However, there is a catch here which is quite apparent this time.

The very same bunch which are responsible to ruin the banking sector, “right before going into the next assembly election”, are trying to cover up their mistake by pumping the public fund from the insurance sector into the banking sector. This is just like the yearend adjustment entries done to clean the balance sheets. Alas, if at all they care about the economy of the country as a whole, over their personal benefits.

No wonder, it’s the unthoughtful steps taken by the present Indian Government like demonetisation and failure of proper control mechanism by the RBI, which has turned the finance sector into such a bad shape. And now, after ruining the banking sector, it seems as if the government intends to destroy the Insurance sector, as well. Don’t all this somewhere raise the question that is the finance sector, insurance sector, as well as, India in the wrong hands?

I wish that the Almighty give good sense to each one of us.

Stay in touch.

God bless you all!

 

Peyush Jain

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