The board of the Life Insurance Corporation (LIC) of India has approved the proposal to buy 51% shares in the state-run IDBI Bank on Monday, paving the way for a stake sale in the cash-strapped lender.
“The LIC board has approved the proposal to buy 51% shares in the IDBI Bank,” S.C. Garg, Secretary, Department of Economic Affairs, who is also on the LIC board, told reporters. The stake sale could happen at one go.
Mr. Garg said the state-run insurer would “mostly likely” buy additional shares through a preferential issue since the IDBI Bank would need capital. “The other option is that they can buy [stake] from the government, but that doesn’t provide capital to the IDBI Bank,” he said.
The IDBI Bank’s financial health has deteriorated with the yearly loss widening to Rs. 8,238 crore in FY18 from Rs. 5,158 crore in FY17. Its gross non-performing assets at the end of March was 27.95% of advances. The lender is under the prompt corrective action framework of the Reserve Bank of India.
While the LIC holds 8% stake in the Bank, the government holds about 86% and has been trying to shed its stake in the beleaguered bank for about two years now. Since public holding is low, an open offer to minority shareholders is not material in this context, Mr. Garg said.
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