LIC begins acquisition process of IDBI Bank; to raise stake by 7%

IDBI Bank today said Life Insurance Corporation (LIC) will buy an additional 7 percent stake in the bank, a move that will eventually lead to the acquisition of 51 percent shareholding in the lender.

The first round of stake sale will help the debt-ridden lender to meet the immediate capital requirement, sources said.

In August, the Union Cabinet had approved LIC's proposed acquisition of up to 51 percent stake in debt-ridden IDBI Bank.

At present, insurance behemoth LIC holds 7.98 percent stake in the debt-ridden public sector bank.

"The Bank has received a letter dated August 28, 2018, from LIC giving their in principle approval for subscription of the equity shares on preferential basis subject to their total exposure not exceeding 14.90 percent of the post-issue capital of IDBI Bank at any point of time," IDBI Bank said in a regulatory filing.

The board at its meeting, to be held on August 31, will consider the proposal for seeking shareholders' approval through postal ballot for preferential issue of capital to LIC, aggregating up to 14.90 percent of the bank's post-issue paid-up capital, it added.

This first round of stake sale, the sources said, will take care of the immediate need of IDBI Bank and help it meet capital adequacy norms at the end of second quarter.

IDBI Bank shares had dropped sharply by over 5 percent to a day's low of Rs 57.85 after the announcement.

The stock, however, recovered from lows in the last hour of trade to settle down by 0.82 percent at Rs 60.80 on BSE.

As many as 30.46 lakh shares of the bank were traded on the course.

The bank, in which the government holds 85.96 percent stake, had posted a net loss of Rs 2,409.89 in the quarter ending June 2018. It had a gross non-performing asset (NPA) of about Rs 57,807 crore.

The board of Insurance Regulatory and Development Authority of India (Irdai), at its meeting held in Hyderabad in June, 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.

With the culmination of the deal, 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 policyholders and subsequent flow of fund.

(This story has not been edited by Devdiscourse staff and is auto-generated from a syndicated feed.)