State-run Life Insurance Corporation of India (LIC) has sought government approval to buy a controlling stake in troubled IDBI Bank Ltd, said a person with direct knowledge of the matter. The move will enable the insurance company’s entry into the Indian banking system.
LIC wants to buy an additional 43% stake in IDBI Bank for about Rs 10,500 crore. This would increase LIC’s total stake in the bank to 51% from 8%. The government stake in IDBI Bank increased to 85.96% from 80.96% after a preferential sale of shares by the bank to the government last month.
“The LIC board has already approved initiatives for taking controlling stake in taking over a bank. The specific proposal regarding acquisition of controlling stake in IDBI Bank shall be placed before the board after the approval of the government,” said the person cited above, requesting anonymity.
Any decision to sell the government stake in IDBI Bank will have to be approved by the cabinet.
IDBI has the highest non-performing asset (NPA) ratio among state-run lenders in India. India Ratings & Research Pvt. Ltd, the local unit of Fitch, downgraded IDBI Bank this month citing a sharp deterioration in asset quality.
The government has been trying to privatise IDBI Bank for the past couple of years in the wake of mounting losses and rising bad debts. IDBI Bank’s loss widened to Rs 8,237.92 crore in the fiscal year ended 31 March from Rs 5,158 crore in the previous year.
IDBI Bank’s gross NPAs almost doubled to Rs 55,588.26 crore during fiscal 2018, which is 32.36% of the bank’s gross advances made during the year.
“The financial projections and business plan will be drawn by the bank and the capital raising plan will be decided by the board of the bank,” said the person quoted above when asked about the possible course of action after LIC acquires controlling stake. “However, there is ample indication of a turnaround that the current management of the bank has put together,” he said.
Mint on 4 June first reported the government’s plan to sell its stake in IDBI Bank. The report said that the government was exploring a stake sale in IDBI Bank to a clutch of private equity investors as one of the options to slash its stake to less than 50%. IDBI Bank is not governed by the Bank Nationalization Act, making it easier for the government to divest control.
IDBI Bank has called its annual general meeting on 13 August. One of the items on the agenda is raising capital through various modes, including qualified institutional placements.
The government on 4 June named IDBI Bank’s managing director and chief executive officer M.K. Jain as deputy governor of the Reserve Bank of India. State Bank of India managing director Balasubramanyam Sriram has been appointed the MD and CEO of IDBI Bank for three months.
The government has been pushing for consolidation of state-run banks to bring in synergies, reduce costs and create globally competitive banks.