LIC retains partial interest in IDBI Bank
New Delhi:
The state-owned Life Insurance Corporation of India (LIC) has said it will retain some of its stake in IDBI Bank to reap the benefits of the bancassurance channel.
Along with the government, Life Insurance Corporation (LIC) will also divest but may not completely exit its stake in IDBI Bank, LIC chairman MR Kumar said in an interview.
LIC is currently doing roadshows for its first public release, which opens for registration on May 4.
In recent years, the government has been planning to sell its 45 percent minority stake in IDBI Bank to strategic investors as part of its privatization campaign.
Last week, the Secretary of the Department of Investment and Public Asset Management (DIPAM), Tuhin Kanta Pandey, had said that the privatization process of IDBI Bank was underway and that the size of the share sale would be determined after the completion of the road show.
IDBI Bank became a subsidiary of LIC with effect from January 21, 2019, following the acquisition of an additional 82,75,90,885 shares.
On December 19, 2020, IDBI Bank was reclassified as an associate due to the reduction of the LIC stake to 49.24 percent following the issuance of additional shares by the bank under a Qualified Institutional Placement (QIP).
“Strictly speaking, we are below the threshold of management control, but what the government really means is that management control should be given in such a way that a private entity takes over and runs the bank, and the government in the process gets value from that, said Mr Kumar.
He went on to say that “since LIC is also in the picture, my stance has always been very clear that we will also divest with the government, but it could be 49 percent. So it will depend on how this whole transaction goes and what kind of investors show interest”.
He went on to say that LIC doesn’t want to have “a major interest” but a part of it, as it is a win-win situation for both entities.
IDBI Bank has been the largest contributor to the bancassurance channel, he said, adding that to continue the bancassurance scheme, LIC may not need to hold the full stake.
Bank insurance is an agreement between a bank and an insurance company, whereby the latter can sell its products to the bank’s customers and others via the branch network.
Over the past three years, the bank has made significant gains in savings, cash management and premium collection, he said.
“Once you see the outcome of the fee income from this (scheme), once the board has recognized that this fee-based income is going to grow, the bank would also like to have continuity in the relationship.” noted the chairman.
LIC had bought a 51 percent stake in IDBI Bank in 2019 for Rs 21,624 crore at an average price of Rs 61 per share. However, IDBI Bank script is trading much lower at Rs 45 per unit, indicating loss of investment for the insurer.
Moreover, it injected Rs 4,743 crore into IDBI Bank on October 23, 2019, using policyholders’ money, while the bank further raised Rs, 1,435.1 crore on December 19, 2020, through a QIP.
IDBI Bank exited the Rapid Corrective Action Framework in March 2021, subject to compliance with certain conditions and continued monitoring.
