The much-spoken about deal involving LIC and IDBI got a push on Monday, with the board of LIC approving the proposal to purchase a majority stake in IDBI Bank. LIC will pick up a 51 per cent stake in the state owned bank.
The government currently holds an 86 per cent stake in IDBI, which will reduce to under 50 per cent thanks to the issue of fresh equity. IDBI Bank is likely to issue preferential shares to meet its capital requirement.
While the proposal had received the green signal from LIC, it will now need to be approved by IDBI’s board. According to a report by BloombergQuint, the board is likely to meet sometime soon to discuss the proposal.
LIC has also received permission from the IRDAI (Insurance Regulatory and Development Authority of India) to push up the stake to 51 per cent from its currently held 7.5 per cent (approximate) stake.
IDBI currently has bad loans to the tune of Rs.55,600 crore, with around 36 per cent of its loan book viewed as stressed. The bank has also fared poorly on the core equity tier-1 ratio, which is just 7.42 per cent. The minimum ratio required is 7.375 per cent.
|Bank||Stake held by LIC|
|Punjab National Bank||12.24%|
|Central Bank of India||10.04%|
Source: Bloomberg Quint
LIC has invested in a number of state-owned banks, with its stake ranging anywhere between 2.23 per cent and 13.03 per cent. This deal, would, however, be the largest in terms of the stake value purchased by LIC. In total, the largest insurer in the country has invested in 21 banks.
Sources: Economic Times, Bloomberg Quint