LIC board gives its nod for 51% stake buy in IDBI Bank

"PSU Insurer like to acqire lender's real estate assets"

The board of Life Insurance Corporation (LIC) of India on Monday cleared a decision to buy up to 51% stake in IDBI Bank. The Investment will be through a combination of Investment in a preferential issue of shares by the lender and through a purchase of the stake from the government. In terms of markets regulator Sebi's regulations, the pricing must be based on the average share price for the previous 26 weeks. 

The insurer will also use IDBI Bank's network for premium collection by transferring that business from other lenders. This will provide a float to IDBI Bank, which will marginally bring down its cost of funds. The lender will also support LIC in bancassurance and receive fees for selling LIC policies.

Speaking to TOI, a senior government source said that contrary to the perception of a bailout by LIC, the deal is a "win-win" structure as LIC would be spending around Rs. 12,000 crores but will be getting a bank with substantial assets at a very low valuation. According to him, there are four successful models of life insurers owning banks globally.

The LIC's board decision was announced by economic affairs secretary S C Garg, who is also a director on LIC's board. "An open offer may not come because the amount of public shareholding (in IDBI) is very small - only about 5%- and will not have much bearing on the stake sale," Garg said. Insurance regulator IRDAI has already approved the transaction and LIC will now need to approach the Reserve Bank of India (RBI) and Sebi before it can invest. 

LIC's turnaround strategy includes the bank selling non-core assets, including its life insurance subsidiary and some real estate assets. The investment will improve IDBI Bank's capital adequacy, following which the lender will approach the RBI to lift restrictions under the prompt corrective action. LIC"s plan is to professionalize the running of the bank, change focus to retail and eventually bring more investors when the valuation improves. 

One of the preconditions for the approval by the insurance regulator is that LIC will eventually cut its stake in the bank to 15%. Another arm of the insurance giant, LIC Housing Finance, will be competing with the bank. However, officials said that there were no plans to merge the two as LIC Housing Finance, is a finance company, could get into activities that were not possible for a bank.

LIC is likely to buy some real estate assets of IDBI Bank as part of the deal. The lender has prime real estate properties across the city which are worth over Rs. 4,000 crores.

Source: Times Of India - 17-July-2018