Why in news?
Reserve Bank of India gives in-principle nod to LIC for acquiring majority stake in IDBI Bank.
What is government plan’s on IDBI Bank?
- Union government has proposed to sell around 40-43% stake in IDBI Bank to LIC, due to debt burdens.
- The decision is based on LIC’s capacity, since it is currently the largest public shareholder of IDBI Bank with a stake of 10.82%.
- If it buys another 43%, its total stake in the state-run IDBI bank will be around 55%.
- The stake sale will fetch the government between Rs 10,000-Rs 11,000 crore. Click here to know more about the issue.
What is the recent decision of RBI in this regard?
- Reserve Bank of India (RBI) has given an in-principle nod to Life Insurance Corporation (LIC) for acquiring a majority stake in IDBI Bank.
- LIC had sought the banking regulator’s nod before it had approached the Insurance Regulatory and Development Authority (IRDAI) for seeking regulatory approvals.
- The Cabinet nod is required because the government’s stake will be diluted below 51 per cent in IDBI Bank.
- The government owned 85.96 per cent and LIC 7.98 per cent in IDBI Bank at the end of June.
- After the Union Cabinet approves the proposal, the RBI will examine if LIC meets the “fit and proper criteria” for being a promoter with a controlling stake in IDBI Bank.
- The insurance regulator has, however, asked LIC to bring down its stake in IDBI Bank over a period of five-seven years.
What will be the outcomes of this move?
- LIC is expected to pump Rs 100-130 billion into IDBI Bank through a preferential allotment of new equity shares at a price determined by a formula under SEBI’s rules.
- The deal will likely trigger an open offer, which LIC will make to IDBI Bank’s shareholders.
- By which LIC likely to get management control of debt-ridden IDBI Bank, at the same time LIC may have to pare down its stake in other banks below 10%
- IDBI Bank will likely become a subsidiary of LIC on the lines of LIC Housing Finance, LIC Mutual Fund and LIC Pension Fund.
- IDBI Bank will seek nod from its shareholders and SEBI by holding separate general meeting of its stakeholders on this matter.
Source: Business Standard
