Irda may ease limits to let LIC buy out IDBI Bank
ACQUISITION PLAN LIC may be exempted from 15% limit under Insurance Act MUMBAI:
The Insurance Regulatory and Development Authority of India (Irda) will meet on Friday to consider exempting Life Insurance Corp. of India (LIC) from the 15% restriction in IDBI Bank buyout, said two people with direct knowledge of the matter.
“The government is keen to sell a 43% stake in IDBI Bank to LIC as an acquisition under the provisions of the LIC Act. The Insurance Act does not allow an insurer to take more than 15% in a company so an exemption may be required from Irda for the stake sale to go through,” said one of the two people quoted above.
Mint had reported on 23 June that the LIC could shell out ₹10,500 crore for the acquisition, which would increase LIC’s total stake in the bank to 51% from the current 8%. The government stake in IDBI Bank increased from 80.96% to 85.96% after a preferential sale of shares by the bank to the government last month. However, the government plans to bring its holding to less than 50%, a plan announced in the Union budget of 2016-17.
“The board of the insurance regulator is meeting on 29 June. Among other issues it will also consider whether LIC can be exempt from the insurance norms. This is after the government approved an LIC proposal for buying substantial stake in the state-owned bank,” said the second of the two people quoted above.
“The government is keen to complete the stake sale before December this year,” he said.
Insurance norms prevent LIC from holding more than 15% stake in a company. However, the LIC Act allows the insurer to take investment-related decisions based on the nature of the company and the impact of that investment on its policyholders.
LIC typically does two types of investments—strategic investments and pure investment decisions. For investment decisions it needs to comply with Irda norms.
Considering it is a 43% stake acquisition, LIC would need to make an open offer to the shareholders of IDBI under Securities and Exchange Board of India (Sebi) norms.
An acquisition of more than 25% in a listed company is defined as control under Sebi norms and requires an open offer. “Since the proposal is for LIC to acquire stake in IDBI to increase its stake to 40% which would ordinarily require an open offer to be made under the takeover code for change in control, the transaction would require dispensation from Sebi from a mandatory open offer,” said Abhimanyu Bhattacharya, Partner, Khaitan and Co.
“The stake sale does not require any amendments to the existing laws just regulatory approvals and dispensations from Sebi, Irda, and the Reserve Bank of India (RBI),” said the second person. Even so the acquisition still needs the nod of the banking regulator.
“In the past RBI has not been keen on linking LIC with banks anticipating risks in case things go haywire for the insurer. But the current proposal is yet to come to the banking regulator for its approval,” said the first person.
The government has been trying to privatise IDBI Bank for the past couple of years due to losses and high Non Performing Assets (NPA) ratio. IDBI Bank has the highest NPA ratio among staterun lenders, the gross NPAs almost doubled to ₹55,588.26 crore during fiscal 2018.
IDBI Bank’s loss widened to ₹8,237.92 crore in the fiscal year ended 31 March from ₹5,158 crore in the previous year.