The board of Life Insurance Corporation of India approved a proposal to acquire 51% stake in IDBI Bank, Economic Affairs Secretary Subhash Chandra Garg announced on Monday. The state-owned LIC will now submit its proposal to market regulator Securities and Exchange Board of India, PTI reported.
LIC currently owns 10.8% stake in IDBI.
“IDBI Bank needs capital so they would issue preferential shares,” Garg told reporters, according to BloombergQuint. “The other way is that they can buy from the government but that doesn’t provide capital to IDBI Bank, so it [issuing preferential shares] is the preferred way to do it.”
The proposed deal is yet to receive an approval from IDBI Bank’s board, Garg added. It will also need a nod from the Centre and the Reserve Bank of India, BloombergQuint reported.
The deal will help the debt-ridden state-owned IDBI bank to secure a capital support of Rs 10,000 to Rs 13,000 crore. Analysts said the deal will benefit both entities despite IDBI Bank’s debt. The insurance firm gains access to 2,000 branches of the bank through which it can sell its products.
IDBI Bank’s non-performing assets increased to Rs 55,600 crore at the end of the March quarter, PTI reported. The state-run bank had reported a net loss of Rs 8,238 crore in 2018-’19, The Hindu reported.