This company picks up 4% stake in Bank of India via open market transaction

 

State-owned Bank of India on Friday said LIC has picked up nearly 4 per cent equity shares of the bank through an open market transaction a day earlier.

LIC has picked up nearly 3.9 per cent (15,90,07,791 shares) of the bank through open market acquisition on September 2, 2021, Bank of India said in a regulatory filing.

Before the latest acquisition of shares in the bank, LIC held over a 3.17 per cent stake in the state-owned bank. The bank said that LIC's stake in Bank of India has now increased to 7.05 per cent, equivalent to 28,92,87,324 shares

As per Sebi regulations on substantial acquisition of shares and takeovers, companies have to inform the stock exchanges when an entity holds more than 5 per cent shares in a listed company.

Last week, the bank closed its QIP in which it raised Rs 2,550 crore by allotting preference shares to qualified institutional buyers (QIBs).

In the qualified institutional placement (QIP), which closed on August 30, LIC picked up the biggest chunk by acquiring nearly 39.22 per cent (15,90,07,791 shares) of the equity shares offered in the issue. Through this QIP, the government shareholding in the bank came down to 82.50 per cent from 90.34 per cent earlier.

Apart from using the equity capital to fund business growth, the bank also has to bring down the government's shareholding in the bank. Thus, it is aiming to reduce the government holding by selling the equity.

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IDBI Bank disinvestment: Govt approves 100% stake sale by Centre, LIC

The government has approved the sale of its entire stake, and that of the Life Insurance Corporation of India (LIC), in IDBI bank.

On July 9, the Department of Investment and Public Asset Management (DIPAM) said the Cabinet Committee of Economic Affairs (CCEA) has given its go-ahead to the government and the LIC to offload 100 percent of their entire stakes in IDBI Bank, along with a transfer of management.

At present, IDBI Bank is classified as a private sector bank by the RBI with the government's shareholding at 45.5 percent, LIC's shareholding at 49.24 percent and the non-promoter shareholding at 5.29 percent.

However, DIPAM has said that the exact quantum of stake to be sold will be decided based on a number of factors. "It will be determined, as we go through the transaction, and ascertain investor's interest," it said.

The Department has also clarified that since LIC's stake will be sold alongside the government's shareholding in this transaction, there will be only one transaction advisor.

the Centre's plans to offload atleast 26 percent of its stake. It had also reported that the entire stake may be sold.

DIPAM, in the RFPs issued, had said that the bids by interested investment banks, financial institutions, consulting firms and law firms should be submitted by July 13.

Responding to the queries raised by bidders on the RFP, Dipam has said the broad quantum of primary infusion expected in the bank, and the timeframe for such infusion has not yet been decided. It has also clarified that consortium bids are not allowed.

LIC completed the acquisition of controlling stake in IDBI Bank in January 2019 making it the majority shareholder of the bank. Subsequent to the enhancement of equity stake by LIC, the RBI clarified that IDBI Bank stands re-categorised as a private sector bank.

The Cabinet Committee on Economic Affairs had cleared the 'strategic divestment' of IDBI in early May. LIC will reduce its shareholding in IDBI Bank in parallel with the central government, and with an intent to relinquish management control.

For 2021-22, the Centre has set itself a divestment target of Rs 1.75 lakh crore, on the back of the planned privatisation of Air India, Bharat Petroleum, Shipping Corp, Concor, two state-owned banks (yet to be decided) and the initial public offering of LIC Ltd.

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IDBI Bank may be renamed by LIC

IDBI Bank could be renamed either LIC IDBI Bank or LIC Bank after the Life Insurance Corporation of India (LIC) bought a majority stake in it. But what remains to be understood is whether the new name will hold even after LIC eventually brings down its stake to 15 percent as per regulatory norms.

Insurance Regulatory and Development Authority of India (IRDAI) had in June 2018 made an exception when it allowed LIC to hold 51 percent in IDBI Bank. Insurance regulations state an insurer can hold only 15 percent equity stake in an entity to ensure there is no concentration of risks.

LIC had in In January 2019 completed the deal with IDBI bank. However, IRDAI Chairman Subhash Chandra Khuntia told reporters on the sidelines of an event last week that the approval for the LIC-IDBI Bank deal had been on the condition that the stake will eventually be brought down to 15 percent.

IDBI Bank board had on February 4 approved a proposal to change its name subject to a ‘no objection’ from Reserve Bank of India, shareholders as well as name availability by Ministry of Corporate Affairs.

While IRDAI has not specified by when LIC will have to bring down its stake in IDBI Bank, it is understood it will take at least four to five years. Whether it will be brought down gradually or at once is to be seen.

With IDBI Bank, this is LIC’s foray into the banking sector. Their idea will be to expand operations and engage in a full-fledged banking business. The mandate of reducing stake to 15 percent in the future could be a dampener in their plans.

Also, if the name has been changed after the majority stake purchase by LIC, once they reduce the stake will the name be changed again?

IDBI Bank and turnaround

LIC’s first mission is to help IDBI Bank manage its losses and also offer support to the bank against non-performing assets. IDBI Bank's third quarter loss widened sharply to Rs 4,185 crore, nearly a three-fold increase compared to a loss of Rs 1,524 crore posted a year-ago due to higher provisions.

Net interest income, the difference between interest earned and interest expended, fell by 18.5 percent year-on-year (YoY) to Rs 1,357 crore in the quarter ended December 2018 with 17 percent degrowth in loans.

However, their gross non-performing assets (NPA) as a percentage of total assets declined to 29.67 percent in Q3 against 31.78 percent in Q2FY19 and net NPA also dropped to 14.01 percent against 17.30 percent sequentially.

With LIC coming on board, the idea is to help IDBI Bank achieve a turnaround. At this stage, the 15 percent stake mandate will have to wait for at least 7-10 years. After that, it is not clear whether LIC would want to reduce its stake and exit banking operations or will it be granted an exception for a few more years.

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LIC completes major acquisition in IDBI Bank

IDBI Bank Monday said insurance behemoth LIC has completed acquisition of 51 per cent controlling stake in the bank, making it the lender's majority shareholder. "The deal, conceptualised in June 2018, is envisaged as a win-win situation for both IDBI Bank and LIC with an opportunity to create enormous value for shareholders, customers & employees of both entities through mutual synergies," IDBI Bank said in a BSE filing.

In August last year, the Cabinet approved the acquisition of controlling stake by Life Insurance Corporation (LIC) as a promoter in the bank through a combination of preferential allotment and open offer of equity.

LIC had been looking to enter the banking space by acquiring a majority stake in IDBI Bank, as the deal is expected to provide business synergies despite the lender's stressed balance sheet.

The bank had reported a net loss of Rs 3,602.49 crore during the September quarter of 2018-19. Its gross non-performing assets hit 31.78 per cent (Rs 60,875.49 crore) of the gross advances as on September 30, 2018, as compared with 24.98 per cent in the year-ago period.

IDBI Bank has about 1.5 crore retail customers and about 18,000 employees. With this deal, LIC will have a strategic investment in a large bancassurance channel, thereby increasing its productivity and reducing distribution costs.

Over 800 branches of IDBI Bank can be used as touch points for selling LIC policies, the public sector lender said.

IDBI Bank said it would significantly increase its investments in building data analytics capabilities to analyse customer behaviour of both the entities.

This will enable the bank to enhance its product offerings, reduce distribution cost, de-risk portfolio and support retail business build, it added.

IDBI Bank said its retail loan portfolio is expected to reach 50 per cent by fiscal 2019-20.

"IDBI Bank and LIC have started working to ensure full realisation of their synergies over the next 12 months. Improved financial health will pave the way for the bank to exit from prompt corrective action (PCA) in a time-bound manner and be a future-ready, top-ranked bank. LIC and IDBI Bank are committed to serve the interests of all stakeholders," the bank said.

Of the 21 state-owned banks, 11 are under the PCA framework. These are Allahabad Bank, United Bank of India, Corporation Bank, IDBI Bank, UCO Bank, Bank of India, Central Bank of India, Indian Overseas Bank, Oriental Bank of Commerce, Dena Bank and Bank of Maharashtra.

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LIC unions oppose acquisition of IDBI Bank by insurer

LIC employee unions have said that they are against the proposal for the insurer to acquire 51 percent stake in IDBI Bank as it would be hurt the interest of policyholders and their premium money.

Citing past performance of the investments made in the public sector banks (PSBs), Federation of LIC Class-I Officers Association said: "There is considerable erosion in the share value of these banks which may affect our profitability also. In a way, we are forced to participate in the bank recapitalisation programme. The acquisition of a major stake in IDBI has to be viewed with concern in this context."

As per reports, LIC has been made to invest Rs 1,850 crore in PSBs in 2014-15 and 2,539 crores in 2015-16, the federation said in a letter to the LIC Chairman.

LIC currently holds 11 percent stake in IDBI bank and its total stressed portfolio is 35.9 percent of total loans. The gross non-performing assets at the end of March quarter stood at Rs 55,588 crore.

This means that the bank will need a significant amount of capital to clean-up its books and maintain minimum levels of regulatory capital, All India LIC Employees Federation General Secretary Rajesh Kumar said.

"It should also be noted that no private investor has shown any interest in IDBI bank even though the government has been trying to sell equity for over two years now. Given the precarious situation of NPA in IDBI Bank and the intention of LIC to substantially raise its stake in the said bank, there is contagion risk on the policyholders' precious savings, which will grossly impact the capability of LIC to serve its policyholder," Kumar said.

In the past few years LIC has been struggling to raise the bonus on the policies, he said in a letter to LIC Chairman.

"In the March-ended quarter, the bank's net loss stood at Rs 5,663 crores. It is also being reported that the government which could not get a buyer for the ailing bank is trying to off-load its shares to meet the disinvestment target through LIC," Federation of LIC Class-Officers Association general secretary S Rajkumar said.

The insurance laws (Amendment Act), 2015 do not allow any insurer including LIC to hold more than 15 percent stake in any company, Rajkumar said, adding that this is done to protect the interest of the policyholders and bypassing this will undermine the safety of our life fund, which is nothing else but the hard earned money of our policyholders, over a period of 60 years.

Section 35 of the insurance act also does not allow a life insurer to acquire or have control in a non-insurance industry which means the management control is not going to come to our hands, it said.

"It is to be understood that no preferential voting rights, management rights or control will be granted to LIC. In the light of these facts it would be prudent to analyse whether this proposed investment decision is going to be in the interest of policyholders, employees and organization itself," he added.

Last month, Insurance Regulatory and Development Authority of India (Irdai) permitted LIC to pick up to 51 percent stake in the debt-ridden IDBI Bank.

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LIC buying a stake in IDBI Bank not a good idea, government should exit bank ownership

State-owned life insurer LIC is on its way to buying a majority stake in public sector IDBI Bank. Insurance regulator IRDA has stepped in line, waiving a regulatory ceiling of 15% investment in a company by a life insurer. IDBI is perhaps the worst affected of the banks struggling to deal with mounting bad loans. But LIC’s decision to pick up majority stake by buying out government holdings is hardly the best way to deal with the situation.

LIC is a behemoth, the dominant life insurer with extensive financial investments. It holds a stake in over 20 banks and has board positions in some. By increasing its stake in IDBI, where total bad loans as a percentage of advances are 27.95% (compared to an average of 15.6% for public sector banks), it raises many questions. One, this leads to a concentration of risk in the system. Two, it is unclear how LIC is going to contribute to the betterment of IDBI Bank’s governance which is a prerequisite for better performance. Three, this and similar investments could undermine bonuses for LIC’s policyholders.

Even if LIC claims its decisions are taken independently, there is abiding suspicion that government’s fiscal constraints influence it. This leads to the likelihood that LIC’s decisions add to the crowding out effect, particularly when there are signs that private investment demand may have begun to revive. Therefore, LIC buying a majority stake has notable downsides, including undermining credibility of regulators on account of the need to provide exemptions. The current situation stems from conflicts of interest at play when government is an owner, law maker and also overseer of regulators. There needs to be a roadmap for government to exit banks.

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IDBI Bank employees oppose proposed take over by LIC

IDBI Bank officers have opposed the proposed 51 per cent acquisition of the bank's stake by LIC, saying this is a clear move to privatise it, bypassing the assurance given to Parliament. 

"The subjective move of the Government of India tantamount to reneging on the solemn assurance given by the then Finance Minister of the NDA Government on the floor of Parliament on December 8, 2003 that post conversion, the government shall at all times, maintain not less than 51 per cent of the issued capital of the Company. 

"This solemn assurance given on the floor of Parliament forms part of the records of the Parliamentary Committee on Assurances formed the very basis for the ultimate passage of the IDBI (Transfer of Undertaking and Repeal) Bill, 2002," All India IDBI Officers' Association General Secretary Vithal Koteswara Rao said in a representation to Union Minister Arun Jaitley. 

Taking into consideration the fact that the bank has been consecutively posting healthy operating profits, burgeoning provisioning to NPAs and write offs are acting as a drag on the bottom line of the bank, he said. 

"While we demand of the Government of India to put in place stringent measures for recovering the Non-Performing Assets and fix accountability on all the concerned for the burgeoning Non-Performing Assets and mammoth write offs, we fervently urge upon the Government of India to rescind its contemplated move to divest its equity in IDBI Bank below 51 per cent in contravention of the solemn assurance given by the NDA Government to Parliament," Rao added. 

As the contemplated decision which is only a facade for virtual privatisation of IDBI Bank will adversely impact the interests of the officers and workmen staff, the United Forum of IDBI officers and employees through this letter registers unequivocal opposition and protest over the reported decision of the government to dilute its stake in the bank in favour of LIC leading to privatisation of the bank, he noted. 

In the unfortunate eventuality of the government failing to review its stand in the matter, the officers and employees of IDBI Bank will be left with no other option but to take recourse to organisational forms of action which on our part are anxious to avoid at this juncture, Rao said. 

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LIC-IDBI Bank deal finalised; LIC may infuse Rs 13,000 crore in bank

Life Insurance Corporation (LIC), the largest life insurer in India, has finalised the deal with IDBI Bank, which will eventually pave way for the infusion of Rs 13,000 crore in the NPA-mired state-run bank, ETNow reported. The lender will make a preferential allotment of shares to LIC, the report said. 

Post this deal, the government's stake in IDBI Bank will fall below 51 per cent, the report added. 

IRDA is likely to clear the proposal today. The insurance regulator may give LIC exemption from 15 per cent investment cap. 

The government currently holds an 80.96 per cent stake in the bank and the deal may involve both real estate and non-core entities of IDBI Bank valued at around Rs 14,000 crore. LIC has a 10.82 per cent stake in the state-run lender, according to an ET report. 

The current market valuation of IDBI Bank, at around Rs 24,000 crore, does not reflect its inherent value, a senior government official told ET. "The bank has real estate worth around Rs 7,000 crore and also non-core assets of a similar amount. The bank is in the process of a turnaround and will post profits soon," the official said. 

The proposal is part of a plan to professionalise the state-owned lender using the Axis Bank model, which has been mooted for a long time. One of the reasons why the government is looking at a state-owned investor is that the bank's valuation is distressed. 

IDBI Bank posted a loss of Rs 5,662.76 crore for the quarter ended March 31. It had posted a net loss of Rs 3,199.77 crore in the corresponding quarter last year. Percentage of net NPA jumped to 16.69 per cent against 16.02 per cent on a quarter-on-quarter basis. It was at 13.21 in Q4FY17. 

Amount of gross non-performing assets jumped to Rs 55,588.26 crore against Rs 44,752.59 crore on year-on-year basis. 

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