The LIC board on Tuesday considered a proposal to float an open offer to raise the insurer’s stake in IDBI Bank to 51%, apart from acquisition through the preferential allotment of shares by the stressed bank, and decided on modalities of completing the deal.
Before LIC got the Cabinet approval for the deal in August, it had a 7.98% stake in IDBI Bank. Now, it’s in the process of picking up another 7% through a preferential allotment, which will raise its holding total holding in the debt-laden bank to almost 15%.
Economic affairs secretary Subhash Chandra Garg, who is also a member of the LIC board, said the time-table for completing the transaction has been decided and that an open offer is being explored. He, however, added, “…an exemption (from open offer) or not, that is for Sebi to decide.”
So the deal will now involve preferential allotment of shares to LIC by the stressed bank, instead of an outright sale of the government’s stake in the bank to the insurance behemoth, as well as an open offer by LIC, even though the public shareholding is small.
The government, which held 85.96% in IDBI Bank as of June 30, will see its stake diluted to around 44%, the then interim finance minister Piyush Goyal had said after the Cabinet meeting in August. The deal may fetch around Rs10,000-13,000 crore to IDBI Bank, which had received Rs 10,610 crore from the government last fiscal, the most by any public-sector bank (PSB).
The stake hike will help IDBI Bank to meet the immediate capital requirement and enable it to meet the regulatory norms at the end of second quarter.
Since LIC will have the control of IDBI Bank, its stakes in other banks need to be trimmed to avoid potential conflict of interest. As of end-June, LIC held over 13.64% in Axis Bank (where it has a promoter status), 13.03% in Corporation Bank, 12.24% in Punjab National Bank, 10.23% in State Bank of India and 10.20% in Syndicate Bank.
The Insurance Regulatory and Development Authority of India (IRDAI) had, on June 30, approved the deal, giving LIC a special relaxation from its 15% holding cap for insurers in a single firm. In July, the boards of both LIC and IDBI Bank approved the deal, after which the stressed bank approached the government for clearance.
The RBI has already initiated a prompt corrective action on IDBI Bank, restricting its lending to only low-risk assets. In the last quarter of 2017-18, IDBI Bank reported a net loss of Rs 5,662.76 crore, much higher than that of Rs 3,199.8 crore in the same period last year, thanks to an 80% jump in provisions year on year.
The bank recorded losses for seven quarters in a row in the three months through June. Its net loss for the June quarter stood at `2,409.89 crore, compared with `853.01 crore a year earlier. Its gross NPAs ratio touched 30.78%, against 27.95% in the previous quarter and net NPAs widened to 18.76% in the June quarter, compared with 16.69% in the previous quarter.