RBI’s Approval to Acquire IDBI Stakes

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