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.
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.
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.
This article was first published on livemint.com.