India’s largest state-owned insurer, Life Insurance Corporation of India Ltd., will purchase 14.9 per cent equity stake in trouble-hit government owned IDBI Bank as a first step to take ownership of the majority of the shares of the lender.
“It is advised that the bank has received a letter dated August 28, 2018, from Life Insurance Corporation of India giving their principle approval for subscription of the equity shares on preferential basis subject to their total exposure not exceeding 14.90 per cent of post-issue capital of IDBI Bank at any point of time,” said IDBI Bank in a stock exchange filing on Tuesday (28).
“The Board of IDBI Bank at its meeting, which is to be held on August 31, 2018, will consider the proposal for seeking shareholders' approval through Postal Ballot under section 62(1)(c) of the Companies Act, 2013 for Preferential Issue of Capital to LIC, aggregating up to 14.90% of the Bank's post-issue paid-up capital,” the bank added.
Earlier, the Indian government had given its approval for a transfer of 51 per cent majority ownership in IDBI Bank to LIC. However, for LIC to increase its share in the bank beyond 15 per cent, necessary approvals are required from India’s insurance regulator and India’s central bank, Reserve Bank of India (RBI).
Meanwhile, Delhi High Court heard a petition filed by the All India IDBI Officers Association against the LIC-IDBI Bank deal. The court has reportedly asked how investment regulations were relaxed for the deal to move ahead. According to present investment regulations, LIC can’t invest more than 15 per cent in the equity of a single company. Delhi high court has also sought minutes of the LIC board meeting where the deal was sanctioned and ordered the LIC not to continue with the IDBI investment until August 30.
By increasing its stake to 15 per cent, the IDBI bank is expected to get capital quickly. The deal between LIC and the IDBI is very likely to pump 15.49 billion pounds into the bank immediately, according to the analysts. The bank is very likely to get 100 bn to 130 bn pounds once the entire deal is completed as expected.
IDBI bank is facing large asset quality problems as it has reported non-performing asset ratio of 30.78 per cent as on June 30, 2018. Its capital adequacy ratio was touched 8.18 per cent in the last quarter. The Indian government is aimed to pump more investment to allow the bank to recover while RBI imposed some strict restrictions as a corrective measure pull back the bank on its previous track.
