The Cabinet is expected to soon consider IDBINSE -0.42 % Bank’s proposal to issue fresh equity to the Life Insurance Corporation of India (LIC), offering the insurer a controlling 51 per cent stake in the lender as the government pushes for the deal to be completed by September.
The proposal also envisages an open offer for IDBI Bank shareholders by LIC once the transaction is complete. The government does not see any need for parliamentary approval.
“IDBI has shared the proposal made by LIC to acquire 51 per cent stake in the bank,” said a top official. “We will seek approval from the cabinet. After that, the two independent boards (of LIC and IDBI) can take a decision as per the existing regulations.”
IDBI Bank has sought Cabinet approval as the government’s stake will decline to below 50 per cent subsequent to the preferential offer of equity to LIC. The government currently holds an 85.96 per cent stake in the bank.
The government is keen that both IDBI and LIC complete the deal before September to avoid having to infuse funds. “The government will not need to infuse any capital in the bank to help it meet the regulatory requirements,” said the official cited above.
A senior IDBI Bank executive confirmed that the bank will issue fresh equity and the capital will be used to further strengthen the bank. “This is not disinvestment in the sense that the government will earn revenue from the stake sale,” he said. Once the IDBI Bank board gives its nod to be acquired by LIC, the insurer will submit a formal application to the banking sector regulator, the Reserve Bank of India, to allow it acquire the lender.
Finance minister Arun Jaitley said in his FY17 budget speech that the process had already begun and the government would also consider the option of reducing its stake to less than 50 per cent.
The unions of both LIC and IDBI Bank have voiced their concerns over the proposed deal. All India IDBI Officers’ Association general secretary Vithal Koteswara Rao said that the government cannot renege on its assurance to parliament that its stake wouldn’t drop below 51 per cent.
“We have approached some parliamentarians who will be raising this issue on our behalf,” he said. Former finance minister P Chidambaram had made this pledge in 2004.
The official cited above said that the earlier assurance didn’t hold, since the budget proposing a reduction in the government stake was later passed by parliament.
