The Union Cabinet on Wednesday approved the Life Insurance Corporation’s proposal to own controlling stake in IDBI bank. LIC, which already owns about 10.8% of the state lender, will raise its stake to 51%. After the acquisition, IDBI Bank will become a subsidiary of the state-run insurance corporation.
This move reduced the government’s stake in the bank from 80.96% to around 45%. “Government has infused capital to the tune of Rs 16,000 crore since 2015,” Finance Minister Piyush Goyal said, according to Moneycontrol. “For further capital infusion, expansion of the bank’s reach and bringing professional management at the bank, Cabinet has approved LIC to take over IDBI Bank.”
Goyal said once an approval from the Insurance Regulatory and Development Authority is received, fresh equity will be issued to LIC by IDBI. The Insurance Regulatory and Development Authority has currently given an in-principle approval. Goyal claimed the deal is a win-win move for both parties. He added that after the deal is finalised, the income of the bank will increase and the cost of funding policies will fall.
The deal will help the debt-ridden state-owned IDBI bank to secure capital support of Rs 10,000 to Rs 13,000 crore. Analysts have said that 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. The state-run bank had reported a net loss of Rs 8,238 crore in 2018-’19.