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Life Insurance Corporation of India’s (LIC) bid to acquire majority stake in IDBI Bank has hit a legal hurdle, with the Delhi High Court asking the insurance major not to proceed with the deal till August 30.
This comes after a writ petition was filed by the All-India IDBI Bank Officers’ Association challenging the deal on the ground that it would cause hardship to the bank’s employees.
The court had on Friday issued notice to the Centre and the insurer seeking their response to the Association’s petition.
According to Bloomberg, the court has sought details of the reason why investment regulations were relaxed and has asked LIC not to proceed with the deal until the next hearing.
A one-time exemption was given to LIC to raise its stake in IDBI Bank to 51 per cent even though under the Insurance Act, an insurer is not allowed to hold more than 15 per cent stake in another company.
The Association had filed a writ petition in the Delhi High Court under Article 226 of the Constitution seeking a direction to the government disallowing it from reducing its shareholding in IDBI Bank Ltd below 51 per cent.
In its petition, the Association claimed that “the acquisition will result in the loss of the status of IDBI Bank as a ‘public sector bank’ and a ‘government company’, which is in violation of Parliamentary assurances” (that the government shall at all times maintain not less than 51 per cent of the issued capital of the company).
Despite the legal proceedings, LIC on Tuesday took the first step towards acquiring majority ownership in the lender. In a stock exchange filing, IDBI Bank said that LIC has given “in-principle approval for subscription of the equity shares on preferential basis subject to their total exposure not exceeding 14.90 per cent of post-issue capital of IDBI Bank at any point of time.”
As at June-end, the government had 85.96 per cent stake in IDBI Bank while the public held the balance. Within the public shareholding, LIC was the single largest shareholder, with 7.98 per cent stake.
Board meet
IDBI Bank said its Board will meet on August 31 to consider the proposal to seek shareholders’ approval through a postal ballot for a preferential issue of capital to LIC.
The insurer’s board is expected to meet in the first week of September to take further steps to acquire majority stake in the bank.
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