New Delhi/Chennai, July 16 (IANS) The board of state-run Life Insurance Corporation (LIC) on Monday approved the acquisition of up to 51 per cent stake in the government-owned IDBI Bank, Economic Affairs Secretary S.C. Garg said.
Meanwhile, a source told IANS that the Board also asked the LIC Chairman to do little more due diligence on IDBI Bank. “Further the Board also asked the Chairman to satisfy the conditions laid down by the Insurance Regulatory and Development Authority of India (IRDAI) while approving the stake acquisition plan,” the source added.
Briefing reporters after the board meeting in New Delhi that lasted about two hours, Garg said the sale process is likely to take place through preferential shares.
“The amount we’re looking at (from stake sale) will be as per the issue of the preferential shares,” he said.
Queried on whether an open offer would also be made for the IDBI stock, Garg said this was unlikely.
“An open offer may not come about because the amount of public shareholding (in IDBI) is very small, only about 5 per cent and will not have much bearing on the stake sale,” he said.
LIC will now approach the markets regulator Securities and Exchange Board of India (Sebi) for approval, as well as for clearance from the Reserve Bank of India and the government, Garg said.
The IRDAI has already given its approval for the stake purchase stipulating that the interests of LIC policyholders are to be protected and reduction of LIC’s stake in IDBI Bank over a period of time.
According to a source, the matching of the horoscope of the two organisations – LIC and IDBI Bank – have been done and further course of action for their marriage will be done.
However, the source said that the future position of IDBI Bank’s life insurance arm IDBI Federal Life Insurance is not yet clear.
According to the source, the LIC Board discussed the pros and cons of the stake acquisition proposal and found that it would be beneficial for one of the Asia’s largest insurer as well as for IDBI Bank.
“The LIC will get over 2,000 bank branches to sell its policies while IDBI Bank has the opportunity of getting more retail business from LIC policyholders,” the source added.
The challenges for LIC while investing in IDBI Bank is its huge non-performing assets (NPA).
IDBI Bank, whose gross non-performing assets (NPAs), or bad loans, amounted to a staggering Rs 55,600 crore at the end of the fourth quarter ended March, posted a loss of Rs 5,662.76 crore for the quarter, its numbers being pulled down further by its deteriorating NPAs.
The bank had reported a net loss of Rs 3,199.77 crore in the corresponding quarter of the 2017-18 fiscal. It has now reported losses for the sixth successive quarter.
However, the employees unions in both the IDBI Bank and LIC are opposed to the deal.
The All India Bank Employees’ Association (AIBEA) is opposing the purchase by LIC saying this would bring down the government’s stake in the bank to below 51 per cent which is contrary to the assurance given to the Parliament when IDBI was converted into a bank.
On its part, the LIC’s largest union, the All India Insurance Employees’ Association (AIIEA) is opposed to the insurer investing money in IDBI Bank.
“Acquiring a controlling stake in IDBI Bank cannot just be an investment decision. It is a decision to enter a totally new business in which we are afraid we do not have the necessary expertise,” AIIEA General Secretary V.Ramesh told the LIC Chairman in a letter.
“Since acquiring IDBI Bank will not be through the shareholder’s capital but from the savings of the policyholders, we need to be extra cautious in taking such investment decisions,” he said.
“We are aware that LIC long back had desired to enter into banking operations but we do not know how prudent it would be to enter into banking at a time when Indian banking is going through a very difficult period for reasons well known,” Ramesh said.
But an industry official told IANS that since LIC is already into housing finance and mutual funds, “a bank will be a good fit so that it can become a universal financial services provider”.