IRDAI permits LIC to raise stake in IDBI Bank to 51%

The IRDAI board, which met on Friday in Hyderabad, approved accorded its approval to LIC, as it has imposed a 15-per cent ceiling on an insurance company's stake ownership in a company, peovided it has assets under management of Rs2.5 lakh crore. LIC currently has over Rs 27 lakh crore of assets under management.

Under special provisions, LIC can hold up to 30 per cent with the approval of the government, investment committee and the regulator. The proposal also goes against LIC’s own investment mandates, which prevents it from taking over any business. 

The approval to LIC was granted as a special case due to IDBI precarious financial health; the bank has 28 per cent NPAs, the highest in the entire banking sector, and posted a loss of Rs 5663 crore last year.

The capita infusion by LIC may be worth more than Rs9,000 crore in one or more tranches. 

Earlier IRDAI had permitted the public sector insurance giant allowed LIC  to hold an over 15 per cent stake in several companies under a special provision under the Insurance Act. 

Under Section 21 of the Act, the government can give special directions to the Corporation. Under Section 43, LIC has been granted some exemptions which are not available to other insurance companies.

Commenatators say the government is using special provisions in the Insurance Act to facilitate the takeover with policyholders’ money of a  loss-making bank. 

The government has used LIC’s cash surplus on several occasions in the past to bail out failing IPOs of public sector corporations. For example, when IPOs of Coal India and ONGC evoked a poor response, LIC stepped in with bulk purchases.

LIC had also invested between 10-14 per cent in most public sector banks' equity two years ago just before the pile of bad loans surfaced and bank valuations took a beating on the stock exchanges, The Indian Express reported.