IDBI Bank today approved LIC’s proposal to pick up an additional 7 per cent stake in the bank, a move that will eventually lead to acquisition of 51 per cent shareholding by the insurance behemoth in the debt-ridden lender.

The board of directors has approved the proposal for seeking shareholders’ approval through postal ballot for the preferential issue of equity capital to Life Insurance Corporation of India (LIC) aggregating up to 14.90 per cent of the bank’s post-issue paid-up capital, IDBI Bank said in a filing to stock exchanges.

At present, the insurance behemoth LIC holds 7.98 per cent stake in the public sector bank. Earlier this month, the Union Cabinet had approved LIC’s proposed acquisition of up to 51 per cent stake in debt-ridden IDBI Bank.

This first round of stake sale, sources said, will take care of the immediate needs of IDBI Bank and help it meet capital adequacy norms at the end of the second quarter.

The bank, in which the government holds 85.96 per cent stake, had posted a net loss of Rs 2,409.89 in the quarter ending June 2018. It had a gross non-performing asset (NPA) of about Rs 57,807 crore.

The board of the Insurance Regulatory and Development Authority of India (IRDAI), at its meeting held in Hyderabad in June, had permitted LIC to increase its stake from 10.82 per cent to 51 per cent in IDBI Bank. According to current regulations, an insurance company cannot own more than 15 per cent in any listed financial firm.

LIC has been looking to enter the banking space by acquiring a majority stake in IDBI Bank as the deal is expected to provide business synergies despite the lender’s stressed balance sheet. With culmination of the deal, LIC will get about 2,000 branches through which it can sell its products, while the bank would get the massive funds of LIC.

The bank would also get accounts of about 22 crore policy holders and the subsequent flow of funds.

Related Topics
comment COMMENT NOW