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IDBI Bank’s board on Tuesday considered Life Insurance Corporation of India’s offer to buy 51 per cent controlling stake in the former and decided to seek the government’s approval for the acquisition.
The transaction, entailing LIC pumping in about ₹10,000-11,000 crore to increase its stake in IDBI Bank from 7.98 per cent to 51 per cent via a preferential issue of shares and/or open offer, is likely to be completed by September. Post acquisition, the Bank will become a subsidiary of LIC.
The public sector bank’s board meeting came a day after the life insurance behemoth’s board gave its nod to up its stake in the beleaguered bank, which has been weighed down by non-performing assets (NPAs) in the past few years. NPAs stood at ₹55,588 crore as at March-end 2018 (or about 28 per cent of total advances).
“Yesterday, we received a letter from LIC expressing interest in taking a controlling stake of 51 per cent in our bank, together with the promoter status,” said B Sriram, MD & CEO, IDBI Bank.
“The matter was placed before the board of IDBI Bank. We have decided to convey the interest of LIC to the Government of India for their decision. Now, we will await the government’s response to our letter/ communication,” Sriram added.
Depending on the communication from the government, IDBI Bank will take it up with its board and take it forward.
“Any further action on this (acquisition) we will get to know only after the decision of the government on LIC’s proposal,” said Sriram.
Almost 94 per cent stake in the bank is held by the government (85.96 per cent) and LIC (7.98 per cent). The balance 6 per cent is with the public.
Sriram elaborated that: “They (LIC) will have a large role to play... The intent is very clear. They have requested for promoter status.”
He added: “Depending on how the approval comes, there will be requirements to amend the Articles of Association of the Bank to increase the issued and paid-up capital.”
The bank will have to seek regulatory dispensation relating to change in promoter status, acquisition of more than 5 per cent stake under the Banking Regulation Act, fit and proper criteria, and so on.
On the fate of IDBI Federal Life Insurance, Sriram said: “We will take a decision as and when it comes...There was some deal (divestment of IDBI’s stake in the life insurer) that was being considered...So, we will wait for some more time and get some clarity on this and then try and see how we can go forward.”
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