State-run Life Insurance Corporation of India (LIC) has sought government approval to buy a controlling stake in troubled IDBI Bank Ltd, said a person with direct knowledge of the matter.
The move will enable the insurance company’s entry into the Indian banking system.
LIC wants to buy an additional 43% stake in IDBI Bank for about Rs.10,500 crore. This would increase LIC’S total stake in the bank to 51% from 8%. The government’s stake in IDBI Bank increased to 85.96% from 80.96% after a preferential sale of shares by the bank to the government last month.
“The LIC board has already approved initiatives for taking controlling stake in taking over a bank. The specific proposal regarding acquisition of controlling stake in IDBI Bank shall be placed before the board after the approval of the government,” said the person cited above, requesting anonymity.
Any decision to sell the government’s stake in IDBI Bank will have to be approved by the cabinet.
IDBI has the highest bad loan ratio among state-run lenders in India. India Ratings & Research Pvt. Ltd down- graded IDBI Bank this month citing a sharp deterioration in asset quality.
The government has been trying to privatize IDBI Bank for the past couple of years in the wake of mounting losses and rising bad debts. IDBI Bank’s loss widened to Rs.8,237.92 crore in the fiscal year ended 31 March from Rs.5,158 crore in the previous year.
Its gross bad loans almost doubled to Rs.55,588.26 crore during fiscal 2018.
“The financial projections and business plan will be drawn by the bank and the capital raising plan will be decided by the board of the bank,” said the person quoted above when asked about the possible course of action after LIC acquires controlling stake. “However, there is ample indication of a turnaround that the current management of the bank has put together,” he said.