LIC’s IDBI deal may exceed ₹20,000 cr.

Bank’s board forwards LIC proposal to Centre for approval; IDBI’s life arm stake sale to take a back seat

Life Insurance Corporation (LIC)’s proposal to increase its stake in state-run lender IDBI Bank to 51% could come at an investment of more than ₹20,000 crore as the insurer has to buy an additional 367 crore shares, sources in the bank said.

The beleaguered state-run lender’s board on Tuesday considered a proposal from the insurance behemoth to increase its stake in the bank and had decided to seek the government’s approval, said B. Sriram, managing director and chief executive officer of IDBI Bank.

“After the government gives its approval, the matter will be taken up with the IDBI board once again for its approval,” Mr. Sriram said. The bank would thereafter need to seek permission from the banking regulator, the Reserve Bank of India, and the capital markets watchdog, the Securities and Exchange Board of India.

On Monday, LIC’s board had cleared a proposal to increase the insurer’s stake in IDBI Bank to 51%. At present, LIC has 7.98% stake in IDBI Bank, while the government owns 85.96%. LIC will buy the additional shares via a preferential issue.

If there is an open offer, as is mandatory under the existing takeover regulations, LIC’s stake in the bank would increase further.

The government’s share holding in IDBI Bank would fall to 44%, once the LIC increases its stake.

‘Promoter’ status sought

Mr. Sriram clarified that LIC had, in its communication to the IDBI, sought the status of a ‘promoter’ in the bank. This could mean that the government, which is currently the promoter, would cede control thus allowing LIC to pick IDBI Bank’s chief executive and make appointments to the lender’s board.

One fallout of the LIC-IDBI deal is that the stake sale process of IDBI Federal Life Insurance is likely to be put on the back burner, sources in the bank, who did not wish to be identified, said. IDBI, which has a 48% stake in the insurance arm, was in talks to sell a part of its stake.

Potential conflict

Potential investors looking to buy a stake in the life venture want IDBI Bank to sell the insurance policies of IDBI Federal Life — a proposal that will most likely fail to win LIC’s backing — the sources said. Insurance regulations do not allow a bank to sell insurance products of multiple players. A bank can sell life, non-life and health insurance products of only one insurer each from the three categories.

Shares of IDBI Bank rose 3.1% on the BSE on Tuesday to close at ₹58.20.

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