The Board of Directors of state-run Life Insurance Corporation (LIC) will meet today to finalise the acquisition of majority stake in debt-stressed IDBI Bank. According to a PTI report, the due diligence process by LIC is complete as per the directions of Insurance Regulatory and Development Authority of India (IRDAI). LIC will approach markets regulator Sebi after getting approval from its board, which will meet in Mumbai.
Last month, the insurance regulator approved LIC's proposal to increase its stake in troubled IDBI Bank from current 10.82 per cent to 51 per cent. As per current regulations, an insurance company cannot own more than 15 per cent in any listed financial firm. LIC needed IRDAI's nod to buy more than 15 per cent stake in the bad loan-ridden lender.
Currently, the government holds 81 per cent stake in IDBI Bank.
According to an approved plan, the state-owned insurance company will not have any management control over the IDBI Bank. Also, LIC will present a comprehensive plan to reduce its stake to 15 per cent over a period of seven years.
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 synergy despite the lender's stressed balance sheet. The insurance giant will get about 2,000 branches through which it can sell its products. The bank will get accounts of about 22 crore policyholders and subsequent flow of fund.
In June, it was reported that the government was considering merging at least four state-run banks as part of a larger consolidation plan - triggered by rising bad loans. IDBI Bank had also figured in that list. The troubled bank's gross NPA soared to 27.95 per cent of its loans at March 2018 compared to 21.25 per cent at the end of March 2017. IDBI Bank posted a net loss of Rs 5,662.76 crore in Q4 due to higher provisioning for non-performing assets.
Last year in May, IDBI Bank became the first lender to be put under a revised prompt corrective action (PCA) for its high non-performing assets and negative return on assets. The move came after the bank's NPAs shot up by 80 per cent to Rs 35,245 crore and it booked a loss of Rs 2,255 crore for the December quarter of FY 2016-17. Its return on assets also declined to (-) 2.32 per cent at the end of the third quarter of 2016-17.
(With inputs from PTI)