New Delhi: The government is expecting the LIC-IDBI Bank deal to conclude with all approvals in place by end of the second quarter (September).
The proposed deal will give LIC about 53 per cent stake, including 43 per cent government holding that would come for about Rs 11,000 crore (going by current valuation), said sources. After the deal, the government stake is expected to come down to below 51 per cent.
The respective boards will do the groundwork to see the deal through. “We will support and ensure that it is not stuck in approvals and will help expedite the stake sale. That said, even if there is no rigid timeline, the deal should be through in the second quarter,” a source said.
Insurance regulator Irdai is expected to clear the deal in its June 29 board meeting with some conditions. Approvals from market watchdog Sebi and banking regulator RBI are expected by August-end.
In order to maintain the regulatory norms, it is likely that IDBI Bank would lose the status of an independent bank and would become a subsidiary of LIC whose board has already endorsed the state-owned lender becoming its arm.
IDBI Bank share has lost 8 per cent after it became clear it would be a subsidiary like the insurer’s housing finance, pension and mutual fund arms. The scrip closed at Rs 50.59 apiece on Wednesday.
Considering IDBI’s high level of bad loans, the approval of the Reserve Bank of India could be hard to come by. The finance ministry feels convincing RBI about a change in management control would require a great deal of explanations.
The main stumbling block could be the fact that the new shareholder has public insurance deposits to spend on reviving the sick bank, officials said, adding that some detailing could be sought by RBI from LIC. Both the insurers and lender should be ready for the grill, they added.
The RBI had not considered LIC’s earlier application for a banking licence presumably on conflict of interest. For LIC, it is a dream come true as the insurer wanted to enter the banking space like its global peers and had applied for a banking licence in 2013, but withdrew the application later.
The bank has also put on the block some non-core assets, including its stake in subsidiary companies like IDBI Federal Life Insurance and IDBI Mutual Fund.
LIC has been facing criticism for bailing out IPOs of public sector companies. Most recently, the corporation had bailed out Hindustan Aeronautics by subscribing to 70 per cent of the Rs 4,200-crore issue.
In earlier years, LIC had bailed out IPOs of ONGC and Coal India. LIC has an investment portfolio of over Rs 23 lakh crore which is growing every year. Earlier, LIC had also supported the government’s bank recapitalisation plan by picking up fresh issuances by some of the weak banks.
Working on a roadmap to bring down its stake in public sector banks to below 51 per cent, the government is looking at selling strategic stake in IDBI Bank to LIC. The Centre holds 81 per cent in IDBI.
A listed entity, IDBI Bank is grappling with mounting toxic loans with gross non-performing assets rising to a staggering Rs 55,600 crore at the end of latest March quarter.
