The country’s largest life insurer Life Insurance Corporation (LIC) may propose a timeline of 3-5 years for cutting down its stake in the recently acquired IDBI Bank to comply with insurance regulator IRDAI’s norm of 15 per cent stake in a listed investee firm.
Investment returns at the right price will hold the key for the LIC to pare its stake in IDBI Bank. Also, the market conditions have to be right.
Cutting down from a high of 51 per cent stake will take longer and cannot be done in months, sources said, adding that the same may be conveyed by the LIC to the Insurance Regulatory and Development Authority of India (IRDAI). The decision is yet to reach finality, they said.
IRDAI has sought proposals on such a timeline from the LIC management for reducing its stake in IDBI Bank. The regulator’s direction on the timeline can impact IDBI Bank’s stock prices, which is the reason it wants the LIC to propose a time period for stake reduction on which the regulator will take a call.
At present, the permissible limit for an insurer to hold a stake in any listed entity is 15 per cent. But the LIC, with special dispensation from IRDAI, holds more than this in some state-run banks like the Corporation Bank.
Recently, IRDAI Chairman Subhash Chandra Khuntia had said: “We will decide on the timeline on the LIC paring its stake in IDBI Bank. We are not leaving it to them. I have asked them to submit a proposal and after that we will take a decision.”
LIC holds 51 per cent stake in IDBI Bank under a specific permission from Irdai, but under the condition that it will bring it down.
LIC had announced the completion of the acquisition of 51 per cent controlling stake in the near crippled IDBI Bank, which made it the majority shareholder of the bank in January this year.
The near Rs 20,000 crore deal has seen the IDBI Bank, which is under the Reserve Bank of India’s Prompt Corrective Action (PCA) framework, receiving Rs 5,030 crore in January and Rs 14,500 crore in December 2018. As a result, LIC acquired 51 per cent controlling stake in IDBI Bank, making the insurer the lender’s majority shareholder.
Besides, the RBI permits a ceiling of 15 per cent for promoter stake in a private sector bank. Recently the RBI has re-categorised IDBI Bank as a private sector bank.
For the third quarter ended December 2018, IDBI Bank reported widening of losses by nearly threefold to Rs 4,185.48 crore. The bank had reported a loss of Rs 1,524.31 crore in the year-ago period. Its total income fell to Rs 6,190.94 crore for the quarter, compared to Rs 7,125.20 crore in the corresponding period a year ago.