File photo of the LIC building at Nariman Point. 

LIC Board Approves Majority Stake Purchase In IDBI Bank

The Life Insurance Corp. of India’s board today approved increasing its stake to 51 percent in state-owned IDBI Bank, which is grappling with asset quality problems with over a quarter of its loans gone bad.

India’s largest life insurer is also exploring whether it should make an open offer or seek an exemption, Subhash Chandra Garg, secretary, Department of Economic Affairs and member of the LIC board, told the press after the meeting in New Delhi today. The insurer has approved the acquisition and finalised timelines for the process, he said.

This comes a week after state-run LIC gave an in-principle approval to the bank to raise its exposure to 14.90 percent through a preferential issue. The life insurer held about 8 percent in the bank with the government owning 86 percent as of June.

The insurer is looking to complete the transaction in the next three months, a senior official aware of the development told BloombergQuint on condition of anonymity. LIC will acquire another 36 percent in a single phase through fresh issuance of preference shares, the official said.

LIC will seek exemption from making an open offer from the Securities and Exchange Board of India, the official said. If that doesn’t come through, then it would have to comply with the regulator’s norms that mandate any investor crossing 25 percent stake to make an offer to acquire another 26 percent from public shareholders.

The government had earlier allowed LIC to take up to 51 percent majority stake in the bank. Even though the insurance regulator had already approved the deal, regulatory approvals from the Reserve Bank of India and SEBI are still awaited. The acquisition is expected to cost the life insurer up to Rs 13,000 crore.

Separately, the Delhi High Court also heard a petition against this deal by the All India IDBI Officers Association today. The court asked the insurer to explain whether the decision to invest in IDBI Bank was purely commercial. LIC also submitted the minutes of the board meeting in which it approved the transaction.

The next hearing is on Sept. 12.