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NPA-laden IDBI Bank seeks government's nod for 51% stake sale to LIC

Days after the state-run lender received a letter from Life Insurance Corporation of India (LIC) expressing its interest in acquiring 51 per cent controlling stake in IDBI Bank, the NPA-laden bank in its board meeting today sought government's decision in this regard.

twitter-logo BusinessToday.In        Last Updated: July 17, 2018  | 18:49 IST
NPA-laden IDBI Bank seeks government's nod for 51% stake sale to LIC

Days after the state-run lender received a letter from Life Insurance Corporation of India (LIC) expressing its interest in acquiring 51 per cent controlling stake in IDBI Bank, the NPA-laden bank in its board meeting today sought government's decision in this regard.

Shares of the debt-ridden IDBI Bank spiked over 6 per cent today reacting to news that LIC may be coming out with its open offer to minority shareholders of the bank.

This development comes after LIC's board gave its approval to buy an additional 43 per cent stake in the debt-ridden public sector lender for reportedly around Rs 13,000 crore. India's largest life insurer already owns a stake of close to 8 per cent in IDBI Bank but wants to take it up to 51 per cent.

Department of Economic Affairs Secretary Subhash Chandra Garg, who was also a part of the LIC board representing government, told the media yesterday that since the combined shareholding of both the government and LIC would be over 90 per cent - in other words, the public shareholding is too low - an open offer might not be on the cards. He, however, had added that LIC could make an open offer if needed.

In any case, this is a mandatory requirement under Sebi's takeover code. The latter specifies that if a company acquires more than 25 per cent in another listed company, it has to make an open offer to minority shareholders to buy at least 26 per cent more in the target firm.

"Majority stake acquisition by the largest local investor and insurance company in India has restored investors' confidence in IDBI Bank to an extent," Soumen Chatterjee, head of research at Guiness Securities Ltd, told the news agency. "Moreover, we believe that the NPA cycle is very close to being over."

That's certainly good news for the bank which had long grappled with the problem of toxic loans. Its gross non-performing assets jumped to a staggering Rs 55,600 crore at the end of the March quarter. In fact, IDBI Bank boasts the highest gross non-performing assets (27.95 per cent) as a percentage of total loans among all public sector banks.

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