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IDBI Bank posted a net loss of Rs 2,409.89 in the April-June quarter. Photo: Mint
IDBI Bank posted a net loss of Rs 2,409.89 in the April-June quarter. Photo: Mint

IDBI Bank approves issuing preference shares to LIC

Move paves way for LIC's acquisition of 51% stake in IDBI Bank

New Delhi: IDBI Bank today approved LIC’s proposal to pick up an additional 7% stake in the bank, a move that will eventually lead to the acquisition of 51% shareholding by the insurer in the debt-ridden lender.

The board of directors approved the proposal for seeking shareholders’ approval through postal ballot for the preferential issue of equity capital to Life Insurance Corporation of India (LIC) aggregating up to 14.90% of the bank’s post issue paid up capital, IDBI Bank said in a filing to stock exchanges. LIC currently holds 7.98% in the public sector bank.

Earlier this month, the Cabinet approved LIC’s proposed acquisition of up to 51% stake in IDBI Bank. This first round of stake sale, sources said, will take care of the immediate need of IDBI Bank and help it meet capital adequacy norms at the end of the second quarter. The bank, in which the government holds 85.96% stake, had posted a net loss of 2,409.89 in the April-June quarter. It had gross non-performing assets (NPAs) of around 57,807 crore.

The board of the Insurance Regulatory and Development Authority of India (Irdai), at its meeting held in Hyderabad in June, had permitted LIC to increase its stake from 10.82% to 51% in IDBI Bank. According to regulations, an insurance company cannot own more than 15% in any listed financial firm. LIC has been looking to enter the banking space by acquiring majority stake in IDBI Bank since the deal is expected to provide business synergies despite the lender’s stressed balance sheet.

After the completion of the deal, LIC will get around 2,000 branches through which it can sell its products, while the bank will get massive funds of LIC. The bank will also get access to accounts of around 22 crore policyholders and subsequent flow of fund.

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