New Delhi:
The board of the Life Insurnace Corporation(LIC), that met in New Delhi today, has approved the corporation's paln to acqure up to 51 per cent stake in IDBI Bank and has authorised the chairman of the LIC -VK Sharma- to prepare all the details of the IDBI bank take-over plans.
Economic Affairs Secretary S C Garg, who also is the government’s representative on LIC’s board,said LIC would buy out 43 per cent stake in the bank through preferential shares.
"LIC currently holds around 8 per cent of the IDBI Bank and the rest they would buy through preferential shares issued by the IDBI Bank so that bank will get capital. Open offer for IDBI Bank's shares may not be required as public holding in the bank is very low at around 5 per cent .If it is necessary, LIC would go for it, but that is not material here" said Garg.
The deal will now need the approval of IDBI Bank’s board and the government, said Garg.
“Sources point out that LIC Act 1956 permits the Corporation to undertake banking activities and there is no need of amendment of LIC Act for taking over the IDBI Bank.
IDBI Board has scheduled its board meeting on Aug 14 to approve the deal.
Earlier, LIC completed the due diligence process in line with the directions of the Insurance Regulatory and Development Authority of India (IRDAI).
After baord decision LIC will approach markets regulator SEBI and banking regulator Reserve Bank of India(RBI) to seek their permissions for picking up a majority stakes in the financiall battered bank.
IRDAI has already given its approval to the LIC for the stake purchase, a move which will help the debt-ridden state-owned bank get a capital support of Rs 10,000-13,000 crore.
LIC management could convince the baord that taking over IDBI Bank is like fulfilling the LIC's old plans to have a bank so that it can be an effective competition to State Bank of India, ICICICI Bank and HDFC that have all kind financial activities in the group. That too LIC is getting a middle level diverisified bank with 2000 branches at a cheapr pricing.Not only the acquisition of the bank will boost LIC's banacassurance sales also it would get another life insurnace and mutual fund compamy in its fold, said the sources.
Earlier, Nilesh Sathe, member(Life), IRDAI, had said the insurance regulator had allowed the LIC to acquire 51 per cent of the IDBI Bank with the condition that it has to bring down its stake over a period of time to 15 per cent which is the permissible investment limit for the LIC.
“LIC has to come back to us with specific time frame when they can bring down their stakes in IDBI Bank,’’ said Sathe,
IDBI Bank has non-performing loans totalling Rs 55,588 crore as of March 2018 and is under the RBI’s Prompt Corrective Action rules. Its net loss stood at Rs 5,663 crore in the period.