Explained: Why LIC’s stake buy in IDBI Bank may not need Parliament nod

By: | Published: July 3, 2018 9:23 PM

The proposed 51 per cent stake purchase by insurance major Life Insurance Corporation in IDBI Bank may not require Parliament's approval as it does not require any changes in the LIC Act, sources said.

LIC stake in IDBI bank, Life Insurance Corporation, LIC Act, Irdai, mutual fund businesses, LIC stakeThe Insurance Regulatory and Development Authority of India (Irdai) permission help LIC increase the current stake from 10.82 per cent to 51 per cent in IDBI Bank. (Reuters)

The proposed 51 per cent stake purchase by insurance major Life Insurance Corporation in IDBI Bank may not require Parliament’s approval as it does not require any changes in the LIC Act, sources said. Since it is going to be a financial deal as per the LIC Act, the legislation would not require amendment, sources said. However, sources said, it would need cabinet approval if the proposed deal gets all regulatory approval. Although, the proposed acquisition by LIC would not bring any money to the government, the bank would get capital support between Rs 10,000 crore and Rs 13,000 crore depending on the share price of the bank. The bank intends to issue fresh shares so that LIC stake goes up to 51 per cent.

Simultaneously, government stake will come down from the existing 80.96 per cent. Following the issuance of preference shares to LIC, IDBI Bank will shed its character of PSU lender. Last week, Irdai permitted insurance behemoth LIC to acquire up to 51 per cent stake in state-owned IDBI Bank, a development that will help convert the debt-ridden lender into a private sector entity.

The Insurance Regulatory and Development Authority of India (Irdai) permission help LIC increase the current stake from 10.82 per cent to 51 per cent in IDBI Bank. A possible scenario would be the insurance major making IDBI Bank as a subsidiary on the line of its housing finance and mutual fund businesses.

According to the sources, there would be business synergies in case the LIC-IDBI Bank deal materialises. In his Budget speech for 2016-17, then Finance Minister Arun Jaitley had said the process of transformation of IDBI Bank has already started. “Government will take it forward and also consider the option of reducing its stake to below 50 per cent,” he had said.

State-owned 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 policy holders and subsequent flow of fund into their account.

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