LIC should desist from taking control of IDBI: IRDAI

Majority stake with promoter status entitles LIC to dominant representation, but RBI’s 50 per cent norm doesn’t allow such possibility.

Published: 19th July 2018 02:34 AM  |   Last Updated: 19th July 2018 11:44 PM   |  A+A-

Express News Service

MUMBAI: State-run Life Insurance Corporation of India (LIC), which wants to acquire majority stake in IDBI Bank Ltd, may have to re-think about having management control in the banking entity, according to sources in IRDAI. 

On Tuesday, B Sriram, CEO & MD, IDBI, said LIC's intent was clear as it sought promoter status and may have management control. 

"As far as Irdai is concerned, we have nothing to do whether LIC wants management control or not. But LIC itself, will probably re-think if they would like to have management control. Just because you have majority stake doesn't mean you should have control," a senior Irdai member told Express.

Irdai regulations stipulate that for any insurance company willing to increase stake beyond 15 per cent, they require regulatory permissions, but to have management control in the entity is a decision that should be taken by the respective company's board.

"But in my personal opinion, LIC shouldn't have management control, as they cannot run a bank. It should be professionally managed. LIC Chairman can be on the board of IDBI, but day to day functions cannot be carried out by Executive Directors of LIC," he reasoned.

Typically, LIC deputes its EDs to head subsidiaries like LIC Housing Finance and LIC MF, but the same cannot be replicated at IDBI. "Banking is a different ball game altogether," he said.

By virtue of having a majority stake with promoter status, LIC is entitled to have a dominant representation on IDBI board, but RBI norms doesn't allow such a possibility. "Unlike the Companies Act that stipulates one thirds of directors, RBI regulations dictate that 50 per cent should be independent directors. So how can it be called management control for LIC?" he observed.

IDBI's board, which sent LIC's proposal to the government, will meet once again following the government's decision. Both LIC and IDBI will then approach RBI and Sebi, after which, the deal goes to the Cabinet Committee approval. The entire process is expected to be completed by September. 

LIC yet to decide on stake acquisition mode
Mumbai: LIC may have the requisite approvals to acquire up to 51 per cent stake in IDBI Bank, but the insurer is yet to take a call on buying it all at once or in tranches. "That's a call LIC board will take after the approvals are in place," sources said. Currently, LIC has 8 per cent stake in IDBI and can acquire up to 43 per cent more. As per current valuations, LIC may have to spend Rs 20,000 crore for 43 per cent stake via preferential equity. But the capital outgo will increase if LIC makes an open offer. All the capital for the proposed buyout will come from  policyholders money, adding to the Rs 4 lakh crore that LIC already pumped in the equity market. For FY19, IDBI needs Rs 6,000-11,000 crore capital. 


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