LIC's plan to acquire 51 per cent stake the NPA-hit IDBI Bank may be nearing competition but insurance regulator IRDA could soon ask it to submit a stake-reducing timeline. While IRDA had granted permission to the state-owned insurance company to acquire 51 per cent stake in IDBI Bank in June, it had indicated that LIC will have reduce its stake to 15 per cent over time. The centre government gave its final nod to LIC on increasing its stake in July.
"We will look at their (LIC's) business plan (post acquisition of 51 per cent stake in IDBI Bank) and then decide on reduction of its stake in IDBI Bank (to 15 per cent)," IRDAI (Insurance Regulatory and Development Authority of India) Chairman SC Khuntia told reporters on the sidelines of an insurance Assocham summit in Mumbai on Friday. He added that LIC, which is India's largest insurance company, will have to protect the interests of its buyers. "LIC will have to safeguard the interest of policyholders while reducing its stake in the bank," he said.
LIC currency holds 7.98 per cent stake in IDBI, while the government controls a majority stake of 85.96 per cent. In addition to increasing its stake to 51 per cent, the company also wants to acquire additional stake of 7 per cent in IDBI through preferential shares. The state-run company, which is working on the modalities of increasing stake in IDBI Bank to 51 per cent, is expected to invest up to Rs 13,000 in several tranches in IDBI Bank.
Interestingly, though the permissible limit for insurance companies to hold stake in any listed entity is 15 per cent, the IRDA is of the view that permission can be granted in "specific cases". The All India IDBI Officers Association has challenged the move in the Delhi High Court, urging the court to issue a direction to the insurance regulator to withdraw its approval. "We have responded to the court. The IRDA has the powers to give relaxations in specific cases if they are justified. Here, the LIC has requested that in interest of their expansion they would like to have a synergy with a bank. Some relaxation has been given for this specific case," said Khuntia, reported PTI.
The government is planning to merge at least four state-run banks, including IDBI Bank, as part of a larger consolidation plan, which is triggered by rising bad loans. The bank has been put under the RBI's prompt corrective action plan, which is triggered when a bank financial health worsens. IDBI Bank's total non-performing assets soared to 27.95 per cent in March compared to 21.25 per cent a year earlier. Like many other state-owned lenders, IDBI Bank also posted a net loss of Rs 5,662.76 crore in Q4, largely on the back of NPA provisions.
(Edited by Manoj Sharma)