Six days after state-run Life Insurance Corporation of India sought the government’s approval to buy a controlling stake in IDBI Bank Ltd, insurance regulator IRDAI gave its nod to its proposal to increase stake in the NPA-hit bank to 51 per cent from the current 10 per cent. The final decision was taken by the IRDAI board in its Friday meeting.
LIC is expected to invest up to Rs 11,000-Rs 13,000 in several tranches in IDBI Bank. LIC will not get management rights on the board of IDBI Bank and must pare its stake in the bank to 15 percent over a period of five to seven years, BloombergQuint quoted an official as saying.
According to the approved plan, the state-owned insurance company would not have any management control over the state-owned bank. Also, LIC would present a comprehensive plan to reduce its stake to 15 per cent over a period of the seven years. Currently, the government holds 81 per cent stake in IDBI Bank. As per the the insurance laws, LIC needed the insurance regulator’s nod to buy more than 15 per cent stake in the bad loan-ridden lender.
The government is planning to merge at least four state-run banks, including IDBI Bank, as part of a larger consolidation plan, which is triggered by rising bad loans. IDBI Bank’s total non-performing assets soared to 27.95 per cent in March compared to 21.25 per cent a year earlier. Like many other state-owned lenders, IDBI Bank also posted a net loss of Rs 5,662.76 crore in Q4, largely on the back of NPA provisions.
The RBI had put the IDBI Bank under a revised prompt corrective action (PCA) – a mechanism to maintain sound financial health of the banks – in May over its high NPAs and negative return on assets. The move came after the bank’s NPAs shot up by 80 per cent to Rs 35,245 crore and it booked a loss of Rs 2,255 crore for the December quarter of FY 2016-17.