The Life Insurance Corporation (LIC) board on Monday gave its go-ahead to the powerful insurance organisation to acquire the debt-ridden IDBI Bank by raising the stake to 51 per cent via preferential shares, Economic Affairs Secretary SC Garg said.
“Most likely that (preferential share allotment route) would be the way. The bank needs capital. They will issue preferential shares that should be the method,” PTI quoted Garg, who is on the LIC board, as saying.
The debt-laden bank will issue preferential shares to state-owned LIC to raise capital.
“The other one is that they can buy from the government but that does not provide capital to the IDBI Bank and therefore, that is the preferred mode to do it (acquire the bank),” he said after the meeting held in New Delhi.
However, this will not be enough for the LIC to acquire the stakes and Insurance behemoth will now approach markets regulator SEBI, as the bank is a listed entity.
If the SEBI also gave its approval the LIC will get about 2,000 branches through which it can sell its products, while the bank would get massive funds of LIC. The company will be able to appoint at least four members to the bank’s board of directors.
Insurance regulator IRDAI has already given its approval to the insurer for the stake purchase.
LIC already has 7-7.5 per cent stake in the bank and will acquire the remaining for majority holding, Garg said without giving details about the capital the IDBI Bank would get by selling stakes the insurer.
However, sources said the LIC stake buy will help the bank get the capital support of Rs 10,000-13,000 crore.
(With Inputs from agencies)