IDBI Bank board seeks government approval for majority stake sale of 51% to LIC
IDBI, which has the worst asset quality among all the banks with a 28 percent bad loan pile, said it has received a letter from LIC on Monday expressing interest to increase its holding to 51 percent through preferential allotment of shares or an open offer or a combination of both.
Mumbai: IDBI Bank board on Tuesday decided to seek government permission to go ahead with LIC's proposal to increase the stake in the nearly crippled bank to 51 percent. The LIC board gave its approval for the deal on Monday after getting an exemption from the regulator Irdai that made a clear it clear that its permission is contingent on submitting a roadmap to trim its holding to under 15 percent over a period of time.
After the board meeting, the bank, which has the worst asset quality among all the banks with a 28 percent bad loan pile, said it has received a letter from LIC on Monday expressing interest to increase its holding to 51 percent through preferential allotment of shares or an open offer or a combination of both.
"The board decided to convey the interest of LIC to acquire the bank to the government for their decision on the matter," managing director and chief executive B Sriram told reporters after the board meeting.
LIC currently owns 7.98 percent in the bank, down from 10.82 percent in March 2018 following an equity infusion by the government which increased its ownership to 86 percent. The remaining shares are held by the public.
Sriram said the proposal has already been sent to the government and once its approval comes in, it will again go back to the bank's board for final approval. The bank then will have to seek approval for the deal from regulators Reserve Bank and Sebi. From the RBI, the bank will have to get approvals for change in promoter status, substantial acquisition, and the fit and proper conditions. Once the deal is through, LIC will get the management control and will become an LIC subsidiary, Sriram said.
Last month, the Insurance Regulatory and Development Authority had wived the rules and had given its approval to LIC to acquire a controlling stake in the state-run lender.
IDBI Bank has been grappling with a mount of toxic loans that have taken its gross non-performing assets to a staggering Rs 55,600 crore as of March 2018. The deal, criticised by many as throwing good money after bad money, will get much-needed capital support to remain afloat.
LIC has been looking to enter the banking space like its private sector peers. A few years back it was keen to snap up Corporation Bank but then Irdai chief shot it down. The national insurer, which is the largest investor in the country, considers owning a bank will complement its business by providing business synergies by way of better access to bank branches for distribution.
The deal will fetch about 2,000 branches through which it can sell its products, while the bank gets funds to remain afloat. The bank will also get accounts of about 22 crore policyholders and subsequent flow of fund.
During the March quarter, the bank's net loss stood at Rs 5,663 crore.
The bank will look at monetising some of its non-core assets, including in IDBI Federal Life Insurance, on completion of the sale to LIC.
The IDBI counter rallied over 3 percent to close at Rs 58.20 on the BSE on Tuesday, whose benchmark gained 0.54 percent.
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Now the state-owned Life Insurance Corporation of India (LIC) will approach markets regulator Sebi.