Life Insurance Corporation of India will make an open offer to minority shareholders of IDBI Bank in which it proposes to acquire up to 51 percent equity, sources said.
The state-owned life insurer will approach the Securities and Exchange Board of India after getting approval from its board for acquiring a stake in the state-owned bank.
Insurance regulator Insurance Regulatory and Development Authority of India has given its approval to LIC for the stake purchase, a move which will help the debt-ridden bank get a capital support of Rs 10,000-13,000 crore.
According to market regulator SEBI’s takeover code rules, an acquirer has to give an open offer to shareholders of the target company on acquiring shares or voting rights of 25 percent or more.
Sources said the board of 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.
An insurance company cannot own more than 15 percent in any listed financial firms, according to current regulations.
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.
For LIC 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 policyholders and subsequent flow of fund.
Also Read: LIC-IDBI Bank: A Stop-Gap Solution
If the deal goes through IDBI Bank, which is grappling with mounting bad loans with gross non-performing assets rising to Rs 55,600 crore at the end of latest March quarter, will get the 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 the issuance of fresh equity so that the government’s stake, currently at 80.96 percent, would come down below 50 percent as announced in the Budget.
Shares of IDBI Bank extended gains for the second day and rose as much as 7 percent to Rs 57.10 apiece on Wednesday.