The board of Life Insurance Corporation of India (LIC) has approved a proposal for the state-owned company to hold a 51% stake in IDBI Bank, department of economic affairs secretary Subhash Chandra Garg said on Monday.
India’s largest life insurer currently holds around 7.5% stake in IDBI Bank, and will acquire the remaining stake from the government, Garg said in New Delhi, adding that most probably, IDBI Bank will issue preference shares to LIC to complete the deal. Using this route—rather than LIC directly buying the government’s stake in IDBI Bank— will ensure the bank gets capital, Garg added. He is one of the government nominees on LIC’s board.
Garg said that an open offer may not be required as the public shareholding in IDBI Bank is very small at 5%. “LIC will go through the process and make the open offer if necessary, but it is not very material,” he said.
The pricing of the deal will depend on the formula of the preference share issuance, he added.
The government holds 85.96% in IDBI Bank.
Mint was the first to report on 11 June about the government looking at financial institutions like LIC to pick up a stake in IDBI Bank and then let a professional board run the bank.
The government has been trying to privatize IDBI Bank for the past couple of years because of mounting losses and rising bad debt. IDBI Bank’s loss widened to ₹8,237.92 crore in the fiscal year ended 31 March from ₹5,158 crore in the previous year. Its gross bad loans almost doubled to ₹55,588.26 crore during fiscal 2018, which is 32.36% of the bank’s gross advances during the year.
“According to Section 10a(iii) of Sebi’s SAST (substantial acquisition of shares and takeovers) Regulations, LIC will be required to make an open offer as public shareholding to acquire 51% stake in IDBI bank. As a result, the public shareholding in the bank will fall below the minimum shareholding. LIC will therefore have to look at delisting the shares of the bank to avoid this,” said J.N. Gupta, co-founder and managing director of Stakeholders Empowerment Services, a proxy advisory firm.
The board of IDBI Bank will consider the proposal in a meeting on 17 July, said a banker who did not wish to be identified.