Board gives approval to raise stake to 51% in the lender, may cost it Rs 12,000 crore
The Life Insurance Corporation (LIC) Board on Monday gave approval to the insurance behemoth to acquire up to 51% stake in IDBI Bank.
IDBI Bank is likely to issue preferential shares to LIC so that the insurer's stake goes up from the current 7.98 % to 51%.
The bank will convene the Board meeting in a day or two, a senior official of the bank told DNA Money.
For this, LIC is expected to infuse Rs 12,000 crore into the bank in tranches as per its capital requirements. The government holds 85.96 % stake, the public holds 3.77%, while the remaining stake is held by mutual funds and other insurance companies. IDBI Bank will also have certain performance milestones to achieve for cleaning up its balance-sheet. The plan would now have to be approved by the Union Cabinet and the IDBI Bank Board.
Since the public holding in the bank very small there would be no need to make an open offer.
"LIC is likely to explore the preferential share route to increase its stake," Subhash Chandra Garg, Union economic affairs secretary, who was also a part of the LIC Board representing the government, told reporters. However, according to the Sebi takeover code, if a company is acquired and the new shareholder who owns more than 26% has to make an open offer.
Garg said since the combined shareholding of both the government and LIC would be over 90% and that public shareholding is too low, an open offer might not be on the cards. He, however, clarified that LIC could make an open offer if needed.
According to the takeover plan approved by the Insurance Regulatory and Development Authority (Irda), the state-owned insurance company would not have any management control over the state-owned bank. Also, LIC would present a comprehensive plan to reduce its stake to 15% over seven years, but this could be extended.
The government has appointed B Sriram, former managing director of State Bank of India (SBI), as managing director and chief executive officer (CEO) of IDBI Bank, and with his vast experience in both retail and corporate banking, the bank may be able to clean up its balance-sheet faster than earlier estimated. The bank is shrinking its balance-sheet while cleaning up the bad loans either through sales, one-time settlements or recovery. Only the retail book of the bank is growing.
IDBI Bank, which is under prompt corrective action (PCA), is planning to sell Rs 21,000 crore of its NPAs from the corporate book to asset reconstruction companies to other banks. The bank has about Rs 55,000 crore of NPAs. In the last financial year the bank sold non-core assets worth Rs 4,400 crore.
Its total fund based and non-fund based exposure to industries is about Rs 2,19,806 crore, of which the non-fund based exposure is Rs 72,618 crore as on March 31, 2018.
LIC had put in an application for a Universal Bank Licence with the Reserve Bank of India, but was unsuccessful. After increasing the stake, LIC will get about 2,000 branches through which it can sell its products. The bank will get access to 22 crore policyholders and subsequent flow of fund.
The IDBI Bank share price closed 1.48% down at Rs 56.45 on BSE on Monday.
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Since the public holding in the bank very small there would be no need to make an open offer.
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