LIC to buy 14.9% in IDBI Bank initially as deal hits legal hurdle
29 August 2018
Life Insurance Corporation of India (LIC) has proposed to purchase 14.9 per cent equity in loss-hit IDBI Bank, ahead of taking majority stake, after the Delhi high court asked the insurance giant not to proceed with the deal till 30 August, following a petition filed by employees of the bank.
The high court has sought details of relaxation of investment norms for the LIC-IDBI Bank deal after the All-India IDBI Bank Officers’ Association moved court challenging the deal on the ground that it will cause hardship to the bank’s employees.
The court is reported to have sought details on why investment norms were relaxed for LIC buying into IDBI Bank.
It had on Friday also issued notices to the centre and the insurer seeking their response to the association’s petition.
While an insurance company is not allowed to buy more than 15 per cent in another financial institution, the government has given a one-time exemption to LIC to raise its stake in IDBI Bank to 51 per cent.
The IDBI Officers Association filed a writ petition in the Delhi High Court under Article 226 of the Constitution seeking a direction to the government disallowing it from reducing its shareholding in IDBI Bank Ltd below 51 per cent.
According to the petition, “the acquisition will result in the loss of the status of IDBI Bank as a ‘public sector bank’ and a ‘government company’, which is in violation of parliamentary assurances” (that the government shall at all times maintain not less than 51 per cent of the issued capital of the company).
In a stock exchange filing, IDBI Bank, however, said LIC has “in-principle approval for subscription of the equity shares on preferential basis subject to their total exposure not exceeding 14.90 per cent of post-issue capital of IDBI Bank at any point of time.”
As of end-June, the government held 85.96 per cent stake in IDBI Bank while the public held the balance. Within the public shareholding, LIC was the single largest shareholder, with 7.98 per cent stake.
IDBI Bank said its board will meet on 31 August to consider the proposal to seek shareholders’ approval through a postal ballot for a preferential issue of capital to LIC.
The insurer’s board is expected to meet in the first week of September to take further steps to acquire majority stake in the bank.