After getting a go-ahead from the insurance regulator IRDAI, Life Insurance Corporation of India is preparing itself to complete the 51 percent acquisition of debt-ridden IDBI Bank by the end of September.
For now, LIC is conducting due diligence of IDBI Bank, its assets, debt position and fixed assets, sources told PTI.
Besides, the insurance behemoth LIC also intends to make an open offer to minority shareholders of IDBI Bank. As per SEBI takeover code rules, an acquirer has to give an open offer to the shareholders of the target company on acquiring shares or voting rights of 25 percent or more.
The board of Insurance Regulatory and Development Authority of India, at its meeting held in Hyderabad last month, had permitted LIC to increase its stake from 10.82 percent to 51 percent in IDBI Bank.
As per current regulations, an insurance company cannot own more than 15 percent in any listed financial firm. LIC has been looking to enter the banking space by acquiring a majority stake in IDBI Bank as the deal is expected to provide business synergies despite the lender's stressed balance sheet.
If the deal goes through, LIC will get about 2,000 branches by which it can sell its products while the bank would get massive funds of LIC. The bank would also get accounts of about 22 crore policy holders and subsequent flow of fund.
IDBI Bank, which is grappling with mounting toxic loans with gross non-performing assets rising to a staggering Rs 55,600 crore at the end of latest March quarter, would get much-needed capital support to revive its fortune. During the period, the lender's net loss stood at Rs 5,663 crore. The government would not get the proceeds from the stake reduction as the money would be utilised for the bank's revival.
It could happen through issuance of fresh equity so that the government's stake which is presently at 80.96 percent would come down below 50 percent as announced in the Budget.