LIC board approves proposal to acquire majority stake in IDBI Bank
16 July 2018
The board of Life Insurance Corporation of India (LIC) today approved a proposal to acquire a 51-per cent stake in IDBI Bank Ltd, in a move that will provide the embattled lender much-needed capital that would help it stay alive amidst mounting bad loans.
LIC, which already owns about 8 per cent of IDBI, will most likely buy additional shares in the lender via a preferential issue, economic affairs secretary Subhash Chandra Garg told reporters.
The government-owned lender needs capital, and so the preferred option for the stake purchase is a preferential issue of shares, Garg told reporters in New Delhi.
The government's stake, which is currently at 86 per cent, will come down below 50 per cent through issue of fresh equity.
LIC may also make an open offer to minority shareholders of the bank, said Garg, who is on the board of LIC, but added that would not be material as the public shareholding in the bank is low.
The Indian government, which has about an 86-per cent stake in IDBI, has in the past wanted to privatise IDBI by ceding control, but its plan did not succeed amid the bank’s deteriorating financials.
The deal will now need the approval of IDBI Bank’s board, said Garg who also is the government’s representative on LIC’s board. The IDBI Bank board is expected to meet soon to consider the investment proposal.
The Insurance Regulatory and Development Authority of India (IRDAI) has already approved LIC’s proposal to increase its stake in IDBI Bank from 10.82 per cent to 51 per cent.
The deal would also require nod from the government and the Reserve Bank of India.
IDBI bank had a staggering Rs55,600 crore in bad loans at the end of the March. According to rating agency ICRA, 36 per cent of the bank’s total loan book is seen as stressed. The bank needs significant amounts of capital to provision against these loans, which it is unable to generate internally despite recent sales of non-core assets.
As of March, the bank had a core equity tier-1 ratio of 7.42 per cent – just marginally above the minimum requirement of 7.375 per cent.
While LIC hasn’t detailed the amount of capital that would be infused into IDBI Bank, reports put the amount that LIC could invest at around Rs13,000 crore.