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Life Insurance Corporation of India is all set to become a knight in shining armour for the ailing IDBI Bank. In a first-of-its-kind transaction, the Insurance Regulatory and Development Authority of India (IRDAI) has approved a proposal allowing the former to acquire a majority stake in the bank.
The approval, which allows for a one-time exemption to LIC to step up its stake in IDBI Bank, was taken at the meeting of the IRDAI board on Friday.
₹13,000-cr investment
Under the proposal, the public sector life insurance behemoth can raise its stake in the public sector bank to 51 per cent, injecting ₹10,000-13,000 crore in the debt-ridden lender, sources said.
The acquisition, however, will be seen only as an investment and LIC will gradually lower its stake in the lender.
According to market players, in 2013, LIC had upped its stake in state-owned Corporation Bank to 28 per cent from about 12 per cent. Subsequently, the life insurer pared its stake (to 13.03 per cent as at March-end 2018) in the public sector bank.
At present, LIC owns a 10.82 per cent stake in IDBI Bank and it will be expected to bring down its holding to the mandated 15 per cent over the next few years. The transaction, which is being seen as an attempt by the government to revive the ailing bank, is still subject to approvals from market regulator SEBI and the Reserve Bank of India.
More approvals awaited
Given the size and the nature of the transaction, sources said it will also be taken to the Union Cabinet for approval. The boards of the bank and LIC are yet to approve the transaction.
“It will take another month before the deal is finalised,” said an official privy to the development.
The Centre currently holds an 80.96 per cent stake in IDBI Bank. Over the last few years, it has been looking at options to recapitalise the lender, which saw bad loans rise to ₹55,588 crore in March 2018.
The bank had received ₹10,610 crore as capital infusion from the Centre in 2017-18.
Shares of IDBI Bank rose 10.02 per cent on Friday to close at ₹54.90 apiece on the Bombay Stock Exchange. Earlier in the day, the lender had issued a statement to the bourses that “no such discussion has taken place in the board of IDBI Bank” on a proposed capital injection of ₹13,000 crore by LIC.
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