New Delhi, July 16 (PTI): The LIC board on Monday cleared a proposal to acquire IDBI Bank by raising LIC’s stake to 51 per cent via preferential shares, Economic Affairs Secretary S.C. Garg said on Monday.
The debt-laden bank will issue preferential shares to state-owned Life insurance Corporation of India to raise capital. The LIC move will help the bank get capital support of Rs 10,000-13,000 crore.
”Most likely that (preferential share allotment route) would be the way. The bank needs capital. They will issue preferential shares that should be the method,” said Garg, who is on the board of LIC.
”The other one is that they can buy from the government but that does not provide capital to the IDBI Bank and therefore, that is the preferable mode to do it (acquire the bank),” he said after the meeting here.
LIC will now have to approach the Securities & Exchange Board of India, the stock market regulator, as IDBI Bank is listed on the bourses.
The Insurance Regulatory & Development Authority has already given its approval to the insurer for the stake purchase.
IDBI Bank too has to get the approval of its board to sell a stake to LIC.
Garg also indicated the there may not be an open offer since the public holding in the bank is very small.
”Open offer may or may not come about. The public share holding is very small. It is only about five per cent. And the pricing formula etcetera may not be attractive. But they will go through that process and if necessary they will make that open offer, but it is not a very material issue in this context,” he said.
LIC already has a 7-7.5 per cent stake in the bank and will acquire the remaining for majority holding, Garg said without giving details about the capital the IDBI Bank would get by selling stakes the insurer.
With acquisition of majority stake, LIC will be able to appoint at least four members on the bank's board, they added.
LIC has been looking to enter the banking space by acquiring a majority stake in IDBI Bank as the deal is expected to provide business synergies despite the lender's stressed balance sheet.
LIC will get about 2,000 branches through which it can sell its products, while the bank would get massive funds of LIC.
The bank would also get accounts of about 22 crore policy holders and subsequent flow of fund.
Once the deal goes through, IDBI Bank, which is grappling with mounting toxic loans with gross non-performing assets rising to a staggering Rs 55,600 crore at the end of the March quarter, will get much needed capital support to revive its fortune.
