For ease process of disinvestment LIC sell the stake to IDBI Bank
The government intends to complete the process in FY21-22
Life Insurance Corporation of India (LIC) has agreed to shed its shareholding in IDBI Bank, a move which will give a boost to the government to completely exit from the IDBI Bank and also ease the process of its strategic disinvestment.
However, it is for LIC to decide on the quantum of the stake it would like to part with to aid this process.
As of December 30, 2020, LIC holds 49.24 percent of the stake in LIC while 45.48 percent is with the Central Government. A senior official told BusinessLine that LIC is ready to sell shares. The government intends to complete the process in FY21-22. Keeping that in mind, amendments have been proposed in the Finance Bill 2021. The Finance Bill will be taken up for consideration and passage during the second leg of the Budget Session, starting Monday.
LIC was brought in when IDBI Bank was in trouble, but now the government thinks that phase is over. Accordingly, they now want LIC to offload its holding. Initially, LIC was hesitant, as it believed that the government had to ask the insurance major to sell stakes.
Clauses 152, 153, of the Finance Bill, seek to amend the Industrial Development Bank (Transfer of Undertaking and Repeal) Act, 2003. Once amendments are approved, The Industrial Development Bank of India Limited shall be deemed to have obtained a (Banking) license under Section 22 of Banking Regulation Act, which will be a condition precedent to disinvestment of government’s stake in the Bank resulting in receipts to the government.
In an interview with BusinessLine, Financial Services Secretary Debashish Panda had said, “as a board-run organization, LIC has its own principles to decisions about investment and sale. Whatever they do, they will do it in the interest of policyholders. So, when they are going to offload their stake, it is in their realm … I think LIC would also sense that while the government is also disinvesting, it also has a mandate from the insurance regulator to bring down its holding in IDBI Bank to 15 percent over a period of time. Now, if the government is disinvesting, this means a sizeable, strategic chunk will be available to a potential investor. It could be an attractive proposition and may fetch a better price.”
LIC taking over IDBI was made possible on account of special relaxation provided by the insurance regulator, The Insurance Regulatory and Development Authority of India (IRDAI). The regulations restrict insurer’s holding at a 15 percent stake in a single firm. Also, an insurer cannot have ownership in any non-insurance company. The Reserve Bank of India does not allow non-banking entities to have more than 10 percent stake in a bank.