The board of Life Insurance Corporation of India (LIC) will meet on Monday to consider the acquisition of the government’s 51 per cent stake in IDBI Bank.
Insurance regulator Irdai had cleared the proposal two weeks ago as insurance companies cannot hold more than 15 per cent stake in a company under the IRDAI norms. Once the LIC board clears the proposal, LIC will approach Sebi on the issue of meeting open offer regulations of the Sebi.
As the market valuation of IDBI Bank is around Rs 24,000 crore, the government is expected to fetch Rs 12,000 crore for 51 per cent at the current market price. The deal will also need the approval of banking regulator Reserve Bank of India. Sebi’s takeover code says that an acquirer has to give an open offer to the shareholders of the target company on acquiring shares or voting rights of 25 per cent or more.
The government move to sell stake in IDBI Bank to LIC has met with opposition from the employees of insurance and banking sector, who have questioned the rationale of investing in a bank which is saddled with huge bad loans and losses. “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,” said Rajesh Kumar, General Secretary, All India LIC Employees Federation.
IDBI Bank has been the worst performer among public sector banks owing to mounting losses and rising bad loans. For the year ended March 31 2018, IDBI Bank’s gross NPA rose to 27.95 per cent, up from 21.25 per cent as on March 31, 2017. In absolute terms, gross NPAs jumped to Rs 55,588.26 crore against Rs 44,752.59 crore on year-on-year basis. The bank reported net loss of Rs 8,238 crore in 2017-18, up from Rs 5,158 crore in 2016-17.