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 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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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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Government weighs various options to bring down stake in one PSB

The government is weighing various options, including Qualified Institutional Placement (QIP), to bring down its stake in IDBI Bank. 

The government currently holds 80.96 per cent stake in the Mumbai-based bank. 

"Three-four options are being looked at, including private placement of shares to institutional investors through QIP route," a finance ministry official told . 

The proposal for the issue of equity capital through various alternative modes, including QIP, is listed as one of the agenda for the annual general meeting of the bank to be held in August. 

A decision in this regard will be taken in the next few months, the official said, adding the government has already started the transformation process of the bank like re-balancing of its assets along with shedding of stake in the non-core business. 

In addition, the bank is getting adequate capital support to strengthen its financial health, the official said. Earlier this year, the government infused Rs 10,610 crore, the highest to any public sector bank. Out of this, Rs 7,881 crore was allotted by way of recapitalisation bonds, and Rs 2,729 cr as the direct capital infusion for FY18. 

It is to be noted that Finance Minister Arun Jaitley in 2016-17 Budget had announced that the government will take it forward and also consider the option of reducing its stake to below 50 per cent in IDBI Bank. 

Jaitley had said that India is not ready for privatisation of PSU banks and their present characteristics will continue except for IDBI Bank. 

"We are trying to consolidate some of the banks, which may otherwise find it difficult in a competitive environment ... In one case we are thinking of reducing the government stake to 49 per cent, IDBI Bank," he had said. 

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