No timeline for LIC to cut IDBI Bank stake: Nilesh Sathe

Nilesh Sathe, member (life), Insurance Regulatory Development Authority of India (Irda), in an interview with Anurag Shah of Zee Business said that Life Insurance Corporation’s (LIC) plan to increase stake in IDBI Bank should be treated as investment instead of an acquisition plan by the insurer. He said no timeline has been given to reduce LIC’s share in IDBI Bank but its Board will be responsible for it. 

Irda has allowed LIC to buy majority stake in IDBI Bank. Should we consider the permission as the acquisition of the bank or an investment?

This is a type of investment. It must not be considered as a form of acquisition of IDBI. Investment rules say that you need permission from Irda to invest more than 15% stake in any listed company.

There is a timeline of 5-7 years in which LIC will have to reduce its stake to 15%. Can it go up or down?

It is not so. We have not prescribed any timeline for LIC. Its Board will make a decision on the time by when the percentage of stakes should be brought down back to 15%. But it can’t continue for the eternity. Secondly, it should do in such a way that the market doesn’t get disturbed. So they should take a call at an appropriate time.

Is there any way for that? As you are saying that there is no such a defined timeline.

I haven’t said that there is no timeline for the same. LIC’s Board will take a call and inform us about the same, but we have not prescribed that time, but they must bring it down in two or three or five years.

So should we consider that other insurance company can also approach Irda with a proposal to increase its stake by over 15%?

Yes. We never said that this dispensation is reserved just for LIC. According to insurance regulations, any company with asset value of Rs 50,000 crore can have a 10% stake in a listed company, while company’s with assets between Rs 50,000 crore and Rs 2.50 lakh crore can hold up to 12% stake. Similarly, company’s with the asset value above Rs 2.50 lakh crore can hold 15%  stake in a listed company. But they will need Irda’s permission to increase their stake percentage above the defined limits. For the purpose, they will have to justify the reason for which they want to go beyond the prescribed limits.

Earlier, the authority decided to implement a code of stewardship for the insurers under which they would have had a clear policy on voting and disclosure of voting activity. By when the stewardship code will be regulated?

Stewardship code will be implemented from April 1. We have included the materiality concept in it, but it does not mean that the insurance companies will have to provide full disclosure even if it holds 100 shares in any listed company. We have said that the Board of directors of the company will decide that in which circumstances they will use the right to vote in case of their investments in those companies. These voting rights may go in favour or against or be neutral.

What kind of steps are being taken to increase the penetration of the insurance sector in India? Do you think that the growth in the insurance sector is here to stay?

See, both penetration and density are increasing in India. The 2017 figures show that both life and general insurance sectors have increased significantly in India. In fact, the non-life or general insurance density went up by 20% against 2% global growth. I feel that insurance penetration will increase with time.