The insurance regulator IRDAI will allow IDBI Federal Life Insurance to continue with its existing promoter,IDBI Bank even after the Life Insurance Corporation(LIC) has picked up 51 per cent in the bank and is named as the new promoter of the bank..
The IRDAI Act doesn’t permit one promoter having two licenses and with the LIC acquiring 51per cent in IDBI Bank through multiple deals, it is the new a new promoter of the IDBI Federal Insurance also, which is not allowed under current regulations.
IDBI Federal Life is a three-way joint venture between IDBI Bank, Federal Bank and Belgian insurer Ageas.IDBI Bank, which owns a 48 per cent stake in the insurer (the other two hold 26 per cent each),
However, Nilesh Sathe, member(Life), IRDAI, has clarified that the insurance regulator will ask the LIC to bring its stake down below 51 per cent to the to the law mandated under-15 percent though no time frame has been decided about it and the corporation can hold majority stakes in IDBI Federal Life Insurance through the IDBI Bank for the time being without violating the existing regulations.
“LIC, with its higher stake in IDBI Bank, is still an investor and not a promoter of the Bank as we will ask LIC to lower its stake in IDBI Bank from 51 per cent. We haven’t decided how much time we would allow LIC to lower its stake in IDBI Bank. and when to issue such an instruction,’’ said Sathe.
"Has LIC bought stake or increased stake in IDBI Federal? No. The stake buying in the bank does not mean that LIC is the promoter of IDBI Federal," Sathe said, adding the Irdai law only prevents a promoter from floating/running/ investing in two insurance entities.
"If LIC wants to start another insurance company then we will have objections. But in this case we don't have to step in," he argued.
"We have not prescribed (a timeline for LIC to pare down its stake in IDBI Bank to 15 percent from 51 percent) for the simple reason that if we prescribe a timeframe that every year LIC dilutes 10 percent stake then will it not impact the stock valuation?"
IRDAI feels a time-line for reducing its stake in IDBI Bank has to be decided by the LIC management itself as a regualtor mandated time-line can impact stock prices.
Stating that a timeline for reducing its stake in IDBI Bank has to be decided by the LIC management, he said "the stake can come down even tomorrow if LIC finds the right price.
“As an investor, you always look at how to make profit from an investment."
But he was soon to assert that LIC as an investor in IDBI Bank will have to reduce the stake over a period of time as it has done in other investments where the investment exceeded the prescribed regulatory cap.
Earlier IDBI Bank had informed the stock exchanges that on January 21, LIC has completed acquisition of 51 per cent and controlling stake in IDBI Bank. The IDBI Bank Board has also approved reclassification of LIC as Promoters of IDBI Bank in terms of the shareholder's resolution passed on November 07, 2018 to this effect.
IRDAI had, in June this year, relaxed norms for LIC to make the acquisition of the IDBI Bank..It is expected that the insurance regulator will soon give a timeline to the LIC to bring back its shareholding in IDBI Bank to 15 per cent from 51 per cent.
Earlier IDBI Bank had made efforts to exit IDBI Federal Life Insurance by selling its stakes but couldn’t find a suitable buyer which was prepared to offer price it wanted.
IDBI Federal Life is a three-way joint venture between IDBI Bank, Federal Bank and Belgian insurer Ageas.
IDBI Bank, which owns a 48 per cent stake in the insurer, was keen to sell its stake for about ₹3,000 crore to help clean up its balance sheet. Companies including Max Life Insurance, Birla Sun Life and Exide Life Insurance were reported to have shown an interest in the sale.