The LIC board will meet on September 4 to decide on the modalities for increasing stake in debt-ridden IDBI Bank to 51 per cent, a move that will provide insurance behemoth entry into the banking space.
The board will discuss timeline for the open offer, board level appointments and future strategy for revitalising IDBI Bank, sources said.
The bank received a letter dated August 28, 2018 from LIC giving in-principle approval for subscription of equity shares on preferential basis subject to their total exposure not exceeding 14.9 per cent of post-issue capital of IDBI Bank at any point of time, the bank had said in a regulatory filing yesterday.
The board will consider the proposal on August 31, it added.
The first round of stake sale will help the debt-ridden lender to meet an immediate capital requirement, sources said.
In August, the Union Cabinet had approved LIC's proposed acquisition of up to 51 per cent stake in debt-ridden IDBI Bank.
The board at its meeting, to be held on August 31, will consider the proposal for seeking shareholders' approval through postal ballot for preferential issue of capital to LIC, aggregating up to 14.90 per cent of the bank's post-issue paid-up capital, it added.
The bank, in which the government holds 85.96 per cent stake, had posted a net loss of Rs 24.09 billion in the quarter ending June 2018. It had a gross non-performing asset (NPA) of about Rs 578 billion.
The board of Insurance Regulatory and Development Authority of India (Irdai), at its meeting held in Hyderabad in June, had permitted LIC to increase its stake from 10.82 per cent to 51 per cent in IDBI Bank.
As per current regulations, an insurance company cannot own more than 15 per cent in any listed financial firm.
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.
With the culmination of the deal, LIC will get about 2,000 branches by which it can sell its products, while the bank would get massive funds of LIC.
The bank would also get accounts of about 220 million policy holders and subsequent flow of fund.
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