LIC board approves IDBI Bank stake purchase

LIC board has approved the proposal for the insurer to hold 51% stake in IDBI Bank, said Subhash Chandra Garg

The government has been trying to privatize IDBI Bank for the past couple of years in the wake of mounting losses and rising bad debts. Photo: Mint

Remya Nair

New Delhi: The board of Life Insurance Corporation of India (LIC) has approved the proposal for the insurer to hold a 51% stake in IDBI Bank, said Subhash Chandra Garg, Secretary, Department of Economic Affairs.

The life insurer has around 7.5% stake in LIC at present and will acquire the remaining stake from the government, Garg said, adding that in most probability 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 that the bank receives the capital, Garg added.

Also Read: A little bit of IDBI Bank in my LIC policy

He added 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.

When asked if the deal will require the government's nod, Garg said the deal will require the nod of the government. 

The government has a 85.96% stake 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 in the wake of mounting losses and rising bad debts. 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.

Also Read: Who needs a bad bank? We have LIC

Its gross bad loans almost doubled to ₹55,588.26 crore during 2017-18, which were 32.36% of the bank's gross