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MUMBAI : Life Insurance Corporation of India (LIC) is planning a gradual sale of its stake in IDBI Bank, three people aware of the matter said, nearly two years after it rescued the lender at the Centre’s instance.

In January 2019, India’s largest insurer bought 44% stake in IDBI Bank for 21,624 crore, saving it from collapse. After the stake purchase, LIC holds 51% in the bank.

LIC and government officials are discussing the stake sale plan, the people mentioned above said on condition of anonymity.

IDBI Bank has secured shareholder approval to raise up to 11,000 crore this fiscal in two tranches via equity sales, while LIC is looking for the bank’s stock price to improve before selling its stake.

“As regulators are now asking LIC to reduce, it may start reducing the IDBI Bank stake. The price should be right and for that LIC doesn’t mind waiting. IDBI Bank has had two quarters of profit. The department of investment and public asset management is also saying that they want to sell the stake held by LIC," said one of the three people mentioned above.

The Insurance Regulatory and Development Authority of India (Irdai) restricts insurer’s holding at 15% stake in a single firm to mitigate concentration risk. Irdai also does not allow an insurer to have ownership in any non-insurance company. The Reserve Bank of India does not allow non-banking entities to have more than 10% stake in a bank. The government’s main aim of bringing in LIC is fulfilled and regulators now want LIC to bring down its stake in IDBI Bank in line with existing regulations.

“If LIC has to sell the stake, it has to receive more money than it has put in. If you look at the two tranches of investment in IDBI Bank, the average price of purchase is around 54 per share. Now, the stock is at 38. The government’s main objective to bring in LIC was to restore investor confidence and augment capital and this has been taken care of. So now, LIC’s stake is purely kept from an investment point of view. So, once it gets the right price, it will exit," said the person mentioned above.

IDBI Bank, like other lenders, aims to raise money to strengthen its capital buffers after the blow from the lockdown to check the spread of coronavirus. It plans to first raise 6,000 crore in a qualified institutional placement (QIP). After assessing the impact of the loan moratorium, the bank may raise another 5,000 crore after the December quarter.

IDBI Bank plans to ask LIC to contribute capital proportionately in the QIP so that its holding continues to be 51%, said the second person, but LIC has not decided on this yet. “LIC has not taken any call on contributing further money to maintain the stake at 51%. DFS (department of financial services) and the LIC board are planning this," the first person said. LIC’s main objective is to generate enough returns from its investment and to avoid concentration risk from single company investment, he said. Queries sent to LIC and IDBI Bank remained unanswered.


Anirudh Laskar

Anirudh Laskar is a senior editor at Mint, with 17 years of experience. He has reported on significant corporate matters including large mergers and acquisitions, India's emerging e-commerce sector and regulatory issues in the financial services industry. Based out of Mint’s Mumbai bureau, Anirudh has worked with Business Standard and The Telegraph before joining Mint in 2009.
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