With IDBI Bank being put under prompt corrective action (PCA) by the Reserve Bank of India for their non-performing assets and net losses for FY 2017-2018 amounting to Rs.82.37 billion, the Government is looking to sell its stake and has found a bidder in Life Insurance Corporation. Though as per the law, insurance companies cannot breach the 15% ownership stake in a single company, the Government has requested the IRDAI (Insurance Regulatory and Development Authority of India) to give LIC clearance to own a larger stake in IDBI Bank. To increase the possibility of the exemption, the Government has proposed that LIC holds on to the stake in IDBI Bank for a small period of 5-7 years.
With Life Insurance Corporation already holding roughly between 9 and 10% stake in 6 public sector banks in the country, according to a report, the Government is looking to sell at least 40% of its stake in IDBI Bank to LIC. According to the report, based on IDBI Bank’s current market capital, the stake in IDBI will cost the largest insurer in the country Rs.100 billion.
Though the move may be looked upon as a last resort attempt to revive the ailing IDBI Bank, Chokkalingam, the founder of Equinomics Research & Advisory, believes that LIC buying the stake of IDBI will not benefit both parties. According to him, due to the bad loans and net losses of IDBI Bank, the deal will not prove profitable for LIC.
Source: Business Standard