IDBI Bank Board May Soon Clear Preferential Share Allotment To LIC
IDBI Bank Ltd. will soon convene a board meeting to approve allotment of preference shares to LIC, enabling the insurance behemoth to acquire 51 percent stake in the bank.
The meeting could take place in a day or two, sources said. The board should approve the allotment latest by the end of this week, they added.
The board of LIC today gave approval to the insurer to acquire IDBI Bank by raising its stake to 51 percent via preferential shares. After the approval, both the entities will seek regulatory clearances including from Securities and Exchange Board of India, and Reserve Bank of India.
The Insurance Regulatory and Development Authority of India has already given approval to LIC for the stake purchase, a move which will help the debt-ridden state-owned bank get a capital support of Rs 10,000- 13,000 crore. IRDAI 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 firms.
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. It will get about 2,000 branches through 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.
If the deal goes through, IDBI Bank, which is grappling with mounting toxic loans with gross non-performing assets at a staggering Rs 55,600 crore at the end of the March quarter, will get the much needed capital support to revive its fortune.
During the January-March quarter of last fiscal, 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 86 percent comes down to below 50 percent as announced in the Budget.