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,
