LIC board approves proposal to acquire 51 pct stake in IDBI Bank

The Life Insurance Corporation of India's (LIC) board today approved a proposal to acquire a 51 percent stake in IDBI Bank. The move will provide the embattled lender much-needed capital to set aside for bad loans. The LIC has around 7.5 percent stake in LIC at present and will acquire the remaining stake from the government, Economic affairs secretary Subhash Chandra Garg told reporters, and added that in most probability IDBI Bank will issue preference shares to LIC to complete the deal.
 
According to the Economic affairs secretary, using this route rather than LIC directly buying the government’s stake in IDBI Bank will ensure that the latter receives the capital. 
 
He reportedly said that an open offer may not be required as the public shareholding in IDBI Bank is merely 5 percent, adding “LIC will go through the process and make the open offer if necessary, but it is not very material.” 
 
When asked if the deal will require the government’s approval, Subhash Chandra Garg said the deal will need the government's nod, as the latter has a 85.96 per cent stake in the bank.
 
Earlier, the Reserve Bank of India (RBI) has initiated prompt corrective action on IDBI Bank, which has the highest bad-loan ratio among all banks in the country, and 10 other Indian state-run lenders.
 
LIC, which is fully owned by the government, is a big investor in share sales including initial public offerings of state-run companies.
 
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The pricing of its IDBI stake is yet to be known. IDBI shares fell as much as 7 percent in intraday trade, but recovered after the news of the LIC deal to trade 0.4 percent higher at Rs 57.40 by 0855 GMT, according to a Reuters report.