New Delhi: The Cabinet on Wednesday approved the purchase of a controlling 51 per cent stake in IDBI by the state-run Life Insurance Corp (LIC) which would result in the government becoming a minority shareholder.
The nod is a bid to turn around the loss making government-owned IDBI Bank struggling with accumulated bad loans.
IDBI’s gross non-performing assets (NPAs), or bad loans, amounted to a staggering Rs 55,600 crore at the end of the fourth quarter ended March.
The LIC board had last month approved the acquisition of controlling interest in the IDBI through the issue of preferential shares.
Briefing reporters here following a cabinet meeting, acting Finance Minister Piyush Goyal said increasing LIC’s current shareholding of around 6-7 per cent in IDBI to a controlling interest would provide capital infusion for the bank, help professionalise its management, as well as increase the insurer’s reach through the 2,000-odd branches of IDBI.
It will be a win-win situation for both. Unlike other insurers, there is no bank linked with LIC. The acquisition has wide-ranging synergy benefits for LIC and the bank, Goyal said.
It is big decision for the Indian banking system. As a 51 per cent subsidiary of LIC, IDBI’s capital adequacy will be strengthened and it will be able to come out more quickly of RBI’s Prompt Corrective Action (PCA) framework for resolution of stressed assets, he said.
LIC would get the captive services for selling of insurance products through the bank’s network of 1,916 branches, besides access to bank’s cash management services.
The bank, in turn, would get an opportunity to tap 11 lakh LIC agents for doorstep banking services, he added.
Goyal also noted that with the growth in its income, the bank would also be positioned to benefit from lower cost of funds through the acquisition of low-cost deposits, and fee income from payment services.
The Minister said that the final approval for the stake purchase is awaited from the Insurance Regulatory and Development Authority of India.