IDBI Bank stake sale: Here’s how LIC may raise its shareholding in debt ridden bank

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Published: July 17, 2018 9:27:35 AM

LIC-IDBI Bank deal: In the meeting held on Monday, LIC board finally approved a plan to hike its shareholding in IDBI Bank to 51 percent.

IDBI Bank, IDBI bank LIC deal, shares to LIC, Reserve Bank of India, Irdai, LIC at present holds nearly 7.5 percent shares in the public sector bank. (Reuters)

LIC-IDBI Bank deal: In the meeting held on Monday, LIC board finally approved a plan to hike its shareholding in IDBI Bank to 51 percent. The insurance behemoth at present holds nearly 7.5 percent shares in the public sector bank. A preferential allotment of shares is one such option that the IDBI Bank may come up with to raise the required capital from LIC, Economic Affairs Secretary Subhash Chandra Garg said. “LIC board today approved to acquire 51 per cent shareholding in IDBI Bank, they already have 7.0-7.5 per cent. Remaining they will acquire…The IDBI Bank needs capital they will issue preferential shares, that should be the method. The other one is that they can buy from the government but that doesn’t provide capital to IDBI Bank and therefore that is the preferable mode to do it,” Subhash Garg said.

Preferential allotment is a process by which allotment of shares is done in bulk by the company to a select group of investors. The Economic Affairs Secretary also said that a plan for capital infusion in LIC will “need to be worked out.” “Open offer may or may not come about. The public shareholding is very small. It is only about 5 per cent. And the pricing formula etc may not be attractive, but they will go through that process, and if necessary they will make that open offer, but it not a very material issue in this context,” The Indian Express reported citing him.

The government owns 85.96 per cent stake in IDBI Bank, while LIC has 7.98 percent shareholding in the lender, as per the June-end shareholding details, exchange data shows.

Due to rising losses and mounting non performing assets (NPA) of the lender, the government’s earlier plans to privatise IDBI Bank have failed.

For the year ended March 31, 2018, IDBI Bank’s Gross NPAs rose to 27.95 percent from 21.25 percent as on March 31, 2017 — making it the worst performing state-owned lender in terms of NPAs. In 2017-18, the bank reported a net loss of Rs 8,238 crore, up from Rs 5,158 crore in 2016-17.

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