LIC set to enter banking as Irdai lets it buy 51% stake in IDBI Bank

Mumbai: The long-cherished plan of the national insurer LIC to own bank on Friday moved closer to reality with the regulator Irdai giving a go-ahead to pick a controlling stake in the crippled IDBI Bank.

The decision was taken at the meeting of the board of the Insurance Regulatory and Development Authority of India (Irdai) in Hyderabad this afternoon, sources said.

"The stake buy is happening. The clearance that the Irdai has accorded to LIC is for acquiring 51 per cent stake in the bank. LIC is going to have a controlling stake and is going to pump Rs 10,000-13,000 crore into IDBI Bank," the sources said.

LIC's key rivals in the public sector as well as in the private sector have their own banks, which is a key market entry tool for any insurer to improve sales.

The life insurance major already owns 10.8 per cent stake in the bank, which has been struggling to survive with mounting losses in the past three financial years while its bad loans hit the roof-- a tad below 28 per cent--the highest in the industry.

The government owns 80.96 per cent in the bank, whose market cap rose to Rs 22,954.79 crore on Friday after an over 10 per cent rally over media reports of the LIC deal.

The IDBI counter has been on fire since media reports about the deal began last week. On Friday the counter rallied a whopping 10.2 per cent at Rs 54.90 on the BSE, which benchmark Sensex rallied 1.10 per cent to 35,423.48 points.

IDBI Bank is grappling with mounting toxic loans which has soared to a staggering Rs 55,600 crore in FY18. In the March quarter it reported net loss of Rs 5,663 crore.

Once the deal goes through, LIC, which already holds over 10 per cent in five state-run banks, will have board seats in the bank but it may not take part in the daily operations for want of expertise.

However, according to sources, the regulator has permitted LIC to pick up controlling stake in the bank, relaxing existing rules for investment. As per norms, an insurer cannot hold more than 15 per cent stake in a company.

The proposal now will have to go for an approval from market watchdog Sebi and the Reserve Bank.

Sources said LIC already owns over 10 per cent in many other banks, including SBI (9.98 per cent), Allahabad Bank (12.37 per cent) and Corporation Bank (13.03 per cent), among others.

Sources said LIC's holding in other banks could be a hurdle for this deal to go through and may be forced to pare these stakes.

"Once you acquire controlling stake in a bank, it becomes your subsidiary. And if you own a bank then you cannot hold more than 5 per cent in any other bank. Going by this rule, LIC will have to bring down its stake in other banks unless it manages some more special dispensation," said the sources.

However, IDBI Bank on Friday said no discussion has taken place with regard to capital injection of Rs 13,000 crore in the bank by insurance major LIC.

Clarifying on the matter, the bank informed stock exchanges, "Please refer to your mail dated June 29, 2018, regarding news clarification 'LIC plans Rs 130 bn capital injection in IDBI Bank. It is hereby informed that no such discussion has taken place in the board of the IDBI Bank."