LIC's acquisition of 51% in IDBI Bank a 'win-win' situation for both: Goyal

Life Insurance Company (LIC)’s acquisition of 51 per cent stake in IDBI Bank will be a “win-win” situation for both the government-owned entities, Finance Minister Piyush Goyal said on Wednesday. 

This comes after the Union Cabinet gave nod to bring down its majority stake in the bank. “The move will make IDBI Bank strong, improve its capital adequacy and bring it out of prompt corrective action (PCA). Through the one million agents of LIC, the bank will benefit in terms of lower cost of funds through acquisition of low-cost deposits. LIC will get a captive marketing team through 1,916 branches of IDBI Bank that will help it issue more policies. It is a win-win situation,” Goyal told reporters here.

The Union Cabinet on Wednesday gave its no-objection for reducing government’s stake below 50 per cent in IDBI Bank, according to an official release.

The government approved the acquisition of controlling stake by LIC – giving it a promoter status – through preferential allotment of equity and open offer. As a result, the government will give up management control in IDBI Bank, the release added.

The government will not get cash through the deal and capital will be infused by LIC into IDBI Bank through preferential allotment of equity.

The government will not sell its stake in the open offer, sources said. According to Sebi guidelines, an acquisition of more than 25 per cent in a listed entity is termed as control and requires an open offer. Under the open offer, the acquiring company must make an offer to existing shareholders, aimed at giving them an exit option.

A top finance ministry official said that LIC may seek special dispensation from the Reserve Bank of India (RBI) for allowing more time in lowering its stake below 10 per cent in other banks. “The RBI will be asked to allow LIC to pare its stake in other banks over a period of time,” the official said. LIC has above 10 per cent stake in Axis Bank (13.1 per cent), Corporation Bank (13 per cent), Punjab National Bank (12.2 per cent), State Bank of India (10.1 per cent) and Syndicate Bank (10.2 per cent), as of June 30 this year.

According to the regulatory requirement, LIC has to bring down its stake below 10 per cent in other banks. Goyal said though the Insurance Regulatory and Development Authority of India (IRDAI) has given its in-principle nod to the deal, the equity infusion in IDBI Bank will take place following a final nod from the insurance regulator.