Strategic disinvestment in IDBI Bank
According to the study, LIC could reduce its stake in IDBI Bank by divesting its stake in conjunction with a strategic stake sale planned by the government.
The degree to which the government and LIC will divest their respective shareholdings will be determined at the time of deal structuring in consultation with the Reserve Bank of India(RBI).
On Wednesday, Prime Minister Narendra Modi’s Cabinet Committee on Economic Affairs gave its in-principle approval for strategic disinvestment and management power transition in IDBI Bank Ltd.
In a note, the government said, “The extent of respective shareholding to be divested by GoI and LIC shall be determined at the time of structuring of the deal in consultation with Reserve Bank of India.”
To be sure, the LIC Board had previously authorised stake dilution and management control relinquishment in IDBI Bank.
The Government of India and the Life Insurance Corporation of India (LIC) jointly own more than 94 per cent of IDBI Bank’s shares (GoI 45.48 per cent, LIC 49.24 per cent). IDBI Bank with Management Control is currently promoted by LIC, with the Government of India as a co-promoter.
The LIC Board of Directors has passed a resolution to the effect that LIC may reduce its stake in IDBI Bank by divesting its stake in conjunction with the government’s strategic stake sale, with the goal of relinquishing management control and taking into account price, market outlook, regulatory stipulation, and policyholder interest.
The LIC Board’s decision is also in line with its regulatory requirement to reduce its interest in the
The strategic buyer is expected to inject capital, advanced technologies, and best management practices for the optimum creation of IDBI Bank Ltd.’s market capacity and expansion, and to generate more business without relying on LIC or government assistance/funds.
Resources from the transaction’s strategic disinvestment in government equity would be used to fund the government’s growth programmes that support people.
The RBI withdrew the LIC-controlled bank from its prompt corrective action (PCA) process last month, which was implemented in May 2017 after it failed to meet some regulatory requirements, including capital adequacy, asset quality, and profitability.
Finance Minister Nirmala Sitharaman suggested privatising two state-run banks, along with IDBI Bank, in FY22 when she presented the Budget on February 1.
Meanwhile, IDBI Bank posted a nearly four-fold increase in its standalone profit after tax to 512 crores in the March quarter, up from 135 crores the year before, thanks to a strong 38 per cent increase in net interest income (NII).
After five years of losses, the lender posted a standalone profit of Rs 1,359 crore for the fiscal year that ended in March, compared to a loss of Rs 12,887 crore in FY20. The lender made a combined net profit of 547.93 crores in the January-March quarter, compared to 165.69 crores in the previous quarter.