HEADLINES:
October 16 2018
LIC nod for raising stake in IDBI Bank
17 July 2018

LIC’s stake buy will help the debt-ridden state-owned bank get a capital support of ₹10,000- 13,000 crore.

 The board of Life Insurance Corporation (LIC) of India has approved the proposal to buy 51% shares in the state-run IDBI Bank on Monday, paving the way for stake sale in the cash-strapped lender.

“The LIC board has approved the proposal to buy 51% share in IDBI Bank,” S.C. Garg, Secretary, Department of Economic Affairs, who is also on the LIC board, told reporters. The stake sale could happen at one go.

Preferential issue

Mr. Garg said the state-run insurer will ‘mostly likely’ buy additional shares via a preferential issue since the IDBI Bank will need capital.

“The other option is that they can buy [stake] from the government, but that doesn’t provide capital to the IDBI Bank,” he said.

The IDBI Bank’s financial health has deteriorated with yearly loss widening to ₹8,238 crore in FY18 from ₹5,158 crore in FY17. Its gross non-performing assets at the end of March was 27.95% of advances. The lender is under the prompt corrective action framework of the Reserve Bank of India (RBI). 

While LIC holds 8% stake in the IDBI Bank, the government holds about 86% and has been trying to shed stake in the beleaguered bank for about two years now. Since public holding is low, an open offer to minority shareholders is not material in this context, Mr. Garg said.

“Open offer may or may not come about because public shareholding is very small, only about 5%. And the pricing formula may not be too attractive. But they will go through that process if necessary. But it’s not a very material issue in this context,” he said.

According to the Securities and Exchange Board of India (SEBI) regulations, any company that acquires 25% stake in a listed entity has to make an open offer to acquire 26% additional stake from the public shareholders.

The capital market watchdog may waive the requirement in the case of LIC as it has done earlier in matters involving the government and public sector entities.

Mr. Garg, however, declined to disclose the value of the transaction as he said the amount still needed to be worked out.

Last month, insurance regulator IRDAI had cleared LIC’s proposal to pick up up 51% stake in the IDBI Bank.

The next step for the deal would be to secure approvals from the IDBI Bank board and the government. 

The next board meeting of the IDBI Bank is scheduled for August 14, for finalising the results for the first quarter. 

The board may meet even earlier to discuss the deal with LIC.

Asked if Cabinet approval is needed for the deal, Mr. Garg said, “The approval of the government will definitely be required.”

 

 

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