LIC may buy up to 51% stake in loss-hit IDBI Bank in 3-4 months

Life Insurance Corporation of India (LIC) will invest between Rs10,000 crore and Rs13,000 crore of investor funds in loss-hit IDBI Bank in the next three-four months if the centre manages to have all regulatory approvals in place by then.

Under the proposal, the public sector life insurance giant can raise its 10.82-per cent stake in the public sector bank to 51 per cent, injecting Rs10,000-13,000 crore.
The acquisition, however, will be seen only as an investment and LIC will gradually lower its stake in the lender. LIC is expected to bring down the holding to the mandated 15 per cent over the next few years.
The government is keen to finalise the acquisition of state-owned IDBI Bank by state-owned insurance giant Life Insurance Corporation of India as early as possible to ensure the lender’s balance-sheet shows an improvement by next fiscal.
The Insurance Regulatory and Development Authority of India (IRDAI) has already approved a proposal allowing LIC to acquire a majority stake in IDBI Bank. The acquisition will help infuse Rs10,000-13,000 crore in the bank, which had non-performing loans totalling Rs55,588 crore as of March 2018 and is under the RBI’s Prompt Corrective Action.
Government expects the transaction to be finalised before the end of 2018 and the result should start showing by the end of the financial year.
The finance ministry is already in discussions with IDBI Bank and LIC on the timelines and proposed valuation for the acquisition.
As IDBI Bank is a listed entity, the deal is likely to take place at market value. The boards of IDBI Bank and LIC are, however, expected to come up with a final proposal on the valuation and timeline by the end of this month.
Earlier, in 2013, LIC had upped its stake in state-owned Corporation Bank to 28-per cent from about 12 per cent. Subsequently, the life insurer pared its stake (to 13.03 per cent as at March-end 2018) in the public sector bank.
The transaction, which is being seen as an attempt by the government to revive the ailing bank, is still subject to approvals from market regulator SEBI and the Reserve Bank of India.
The boards of the bank and LIC are yet to approve the transaction.
It will also need approval of the union cabinet. The government currently holds 80.96 per cent stake in IDBI Bank.
The bank had also received Rs10,610 crore as capital infusion from the centre in 2017-18.
Reports also said LIC has for long been eyeing a banking foray, but whether it will get management control of IDBI Bank will depend on RBI policy.
IDBI Bank also has a life insurance joint venture, IDBI Federal Life Insurance, while LIC has stakes in several banks. Issues related to these holdings need to be sorted out.
The investment would also require approval from market regulator SEBI.