MUMBAI: State-run LIC, the black knight for IDBI Bank, can hold as much as 30 per cent equity stake in an entity as a strategic promoter, according to sources.
This is contrary to the maximum investment cap of 15 per cent set by sector watchdog IRDAI, which LIC and the governments wants to be relaxed as a ‘special dispensation.’
The state-run insurer, which already sought the board approval to increase its holding in banks to more than 15 per cent and obtain a controlling stake, has sent a proposal to the insurance regulator seeking relaxations. IRDAI’s board, which is expected to meet on Friday, is likely to consider the proposal.
“LIC can own as much as 30 per cent in some companies under a special dispensation from the government,” a senior official told Express adding that if the insurance behemoth wants to increase its stake to more than 15 per cent, all it needs is multiple approvals from the Cabinet, insurance regulator, banking and markets regulator.
As per the LIC Act, 1956, the life insurer’s investments fall in two categories. One is strategic, where LIC is the promoter (think LIC Housing) and two as an investor, where it has to comply with Irdai norms. Interestingly, there have been precedents where LIC held up to 28 per cent stake in Mangalore-based Corporation Bank as a strategic promoter.
“The deal appears certain as neither Acts (IDBI Act or LIC Act) need to be amended to proceed with the stake sale. Government can reduce its holding and also its liability to pump more capital. IDBI will likely issue preferential shares to LIC, which then becomes equity capital,” the official explained.
In fact, LIC has done this in the past with Corporation Bank in 2013, when the latter issued Rs 2.4 crore preferential equity shares to LIC in two tranches. Consequently, LIC’s stake more than doubled to 28 per cent from 12.32 per cent, while the government holding fell from 68.33 per cent to 56.94 per cent.