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IRDAI approves LIC's proposal to increase stake in IDBI Bank

BBR Staff Writer Published 02 July 2018

Life Insurance Corporation of India (LIC) has secured approval from the Insurance Regulatory and Development Authority of India (IRDAI) to increase its stake in the IDBI Bank from 10% to 51%.

LIC is likely to invest between Rs110bn-130bn ($1.6bn-1.89bn) in several tranches to buy the additional 41% stake in the IDBI Bank, reported Business Today. The stake will be purchased from the Indian government, which currently owns 81%.

IRDAI’s approval comes less than seven days of the LIC seeking the Indian government’s clearance to buy the controlling stake in the bank.

However, the state-owned insurance company will not get management control over IDBI, as per the approved plan. The insurance agency will also have to come up with a plan to cut down its stake to 15% over a period of seven years.

The IDBI Bank is among the four or more state-controlled banks that the Indian government is looking to merge as part of a broader consolidation plan, to keep a check on the growing trend in bad loans. The planned merger is also being seen as an opportunity for some banks to offload assets, cut down overheads and close non-profitable branches.

The IDBI Bank had suffered a loss of Rs 566bn in the quarter ending March 2018 owing to increased provisioning for non-performing assets (NPAs). Due to this, the bank had been placed under a revised prompt corrective action (PCA) by the Reserve Bank of India – the country’s central banking institution to sustain its financial health following its soaring NPAs and negative return on assets.

Meanwhile, the Indian government’s decision to sell a portion of its stake in IDBI Bank to LIC hasn’t gone well with employees in the two firms, reported The Indian Express.

The employees are reportedly not convinced with the rationale behind LIC’s investment in the bank which has been hit with bad loans and losses.

All India LIC Employees Federation general secretary Rajesh Kumar, has been quoted by the publication, to have said: “We are anxious and seriously concerned about this sale.

“Now as a concerned and a responsible trade union in LIC, it is morally worth questioning whether IDBI Bank, a lender with humongous bad loans close to a third of its book, makes for a good investment for LIC.”

Image: LIC Zonal Office, at Connaught Place, New Delhi. Photo: courtesy of Tezpur4u/Wikipedia.org.