Moody's said the initial public offerings of SBI Life Insurance Co. Ltd. and ICICI Lombard General Insurance Co. Ltd. are credit positive for their respective parents, State Bank of India and ICICI Bank Ltd., because the proceeds will allow the lenders to strengthen their loss-absorbing buffers.
State Bank of India sold 80 million shares, or an 8% stake, in SBI Life's IPO for a gain of about 55.2 billion rupees, the rating agency noted in an Oct. 5 report. Moody's expects the bank to use some or all of this gain to improve its loan-loss reserves for nonperforming loans and cap pressure on its profitability.
Meanwhile, ICICI Bank sold 31.8 million shares, or a 7% stake, in ICICI Lombard's IPO for a gain of about 19.7 billion rupees. This gain will be accretive to the lender's capital position and will enhance its ability to absorb any rise in credit costs for the current fiscal year ending March 2018.
Moody's added that while it expects both lenders to keep their majority shareholding in the insurers, selling the stakes offers "a potential source of capital should there be acute solvency stress."
State Bank of India has a remaining 62.1% stake in SBI Life worth about 435 billion rupees, while ICICI Bank has a remaining 55.9% stake in ICICI Lombard worth about 165 billion rupees.
As of Oct. 5, US$1 was equivalent to 65.14 Indian rupees.