MUMBAI: Insurance Regulatory and Development Authority on Friday cleared the decks for state-run Life Insurance Corporation to go beyond the normal threshold and acquire up to 51 per cent stake in IDBI Bank, sources said.
However, it is unclear if the state-run insurer will increase the stake at one go or in tranches. Currently, it holds a little over 8 per cent in the ailing lender, which counts one quarter of its loan book as toxic. LIC can now buy 42-43 per cent in IDBI Bank, reducing the government stake to 44 per cent from the current 86 per cent. If the proposal gets through, IDBI will be the first nationalised bank in which the government’s stake will plunge below 51 per cent, ceding its control as majority shareholder.
LIC will also need regulatory approvals from RBI and markets regulator Sebi, whose norms mandate the acquirer to make an open offer, while gaining a controlling stake in an entity.
Irdai’s decision precedes the government’s request to consider relaxing norms as a special dispensation, giving LIC enough room to pick up additional stake. When contacted, LIC officials declined to comment.
“You'll get to know whatever is the decision. You'll get to know after the minutes of the board meeting are approved. We'll be posting it on our website,” Irdai Chairman Subhash Chandra Khuntia told reporters after the board meeting in Hyderabad on Friday.
Interestingly, Irdai’s approval comes with a rider that LIC will have to pare is stake down to 15 per cent in the next 5-7 years.
Like in the past where LIC held 28 per cent stake in Corporation Bank without seeking management control, the insurer may refrain from management rights in IDBI Bank too, but will have board representation.
According to rough estimates, IDBI Bank, whose capital requirements are just about to breach the regulatory norms, will get the much-needed capital infusion of Rs10,000-13,000 crore.
What’s in it for LIC? Picking up majority stake in IDBI Bank may provide LIC business synergies despite the bank’s stressed balance sheet with gross NPA touching Rs 55,600 crore at the end of the March quarter