LIC looks to offload IDBI stake ahead of RBI timeline

Industry:    2020-02-10

Life Insurance Corp (LIC) is looking to sell down its 51% stake in IDBI Bank well ahead of the RBI mandated 12 year timeline as it believes that the valuation of the lender could rise with the government’s sale of stake leading to a possible entry of private equity investors.

In an interaction with the media after presenting key parameters of the life insurer as of January 31 chairman, MR Kumar also touched upon the insurance behemoth’s plans for its stake in the debt-laden IDBI Bank.

“The Reserve Bank of India has given us a timeline of 12 years to bring our stakes down in IDBI Bank. However, we don’t want to wait this long since we will be listing before that,” Kumar said.

Loss making IDBI Bank has been picked as the first public sector lender in which the government will divest its stake, finance minister Nirmala Sitharaman announced in her budget speech last week. LIC owns 51% in the lender after acquiring shares from the government in January last year. The government still owns 47% stake which it plans to divest in the secondary market.

Kumar said that once the government divests its stake in the bank it will make it easier for LIC to find better valuations. “We are also waiting for government to divest its stake in IDBI. This we expect will bring private equity players into the bank which will help us get more on the script. Currently, we don’t have any float amount,” Kumar said.

IDBI is also among the five public sector banks under RBI restrictions under the so called prompt corrective action (PCA) framework with a loss of Rs 3,459 crore in the quarter ended September as it increased provisions for NPAs. Gross NPAs were at 29.43%.

Kumar expressed hope that the bank will be out of PCA soon. “Once the bank is put out of PCA, there will be a positive impact on profitability. We expect the RBI to bring the bank out of PCA at the end of this quarter because it below the threshold limits on all parameters except profitability,” he said.

LIC has collected Rs 500 crore through new business premiums collected through the bank this fiscal. “Our objective was Rs.2000 crore, but we will finish the year with around Rs.1000 crore which would still be the biggest sales through bank insurance in LIC history,” Kumar said. LIC follows the October to September financial year.

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