Mumbai | The board of IDBI Bank today decided to seek the government’s decision on LIC’s proposal to acquire up to 51 percent stake in the debt-ridden bank.
The board meeting took place a day after insurance behemoth LIC got the approval of its board to increase its stake in the bank up to 51 percent.
In a regulatory filing, IDBI Bank said it has received a letter from Life Insurance Corporation of India (LIC) expressing its interest in acquiring 51 percent controlling stake in IDBI Bank, as a promoter through preferential allotment of shares/ open offer. The bank’s board considered the proposal and “decided to seek Government of India’s decision in this regard”, the filing said.
Insurance regulator Irdai has already given its approval to the insurer for the stake purchase. LIC stake buy will help the debt-ridden state-owned bank get a capital support of Rs 10,000- 13,000 crore.
Once the deal goes through, IDBI Bank, which is grappling with mounting toxic loans with gross non-performing assets rising to a staggering Rs 55,600 crore at the end of the March quarter, will get much-needed capital support to revive its fortune. LIC currently owns 7.98 percent in the bank compared with 10.82 percent as on March 31, 2018.
Last month, Insurance Regulatory and Development Authority of India (Irdai) had given approval to LIC to acquire the controlling stake in the state-run lender, which is sitting on a huge pile of stressed assets.
As per current regulations, an insurance company cannot own more than 15 percent in any listed financial firms. LIC has been looking to enter the banking space by acquiring a majority stake in IDBI Bank as the deal is expected to provide business synergies despite the lender’s stressed balance sheet.
It will get about 2,000 branches through which it can sell its products, while the bank will get massive funds of LIC. The bank will also get accounts of about 22 crore policyholders and subsequent flow of fund.
During the January-March quarter of last fiscal, the lender’s net loss stood at Rs 5,663 crore. The government will not get the proceeds from the stake reduction as the money will be utilised for the bank’s revival. It could happen through the issuance of fresh equity so that the government’s stake which is presently at 86 percent comes down to below 50 percent as announced in the Budget.
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