Union Cabinet approves acquisition of IDBI Bank’s controlling stake by LIC

The Union Cabinet on August 1, 2018 approved acquisition of IDBI Bank’s controlling stake by Life Insurance Corporation of India (LIC) as promoter in the bank.

The acquisition will be done through preferential allotment or open offer of equity and through relinquishment of management control by the Government of India.

The Cabinet has also approved reduction in Government shareholding in IDBI Bank Limited to below 50 percent by dilution.  

How IDBI Bank and LIC would be benefitted by the deal?

• The acquisition would help financially strengthen the LIC and the bank as well as their subsidiaries which offer financial products such as housing finance and mutual funds.

• The IDBI bank will get an opportunity to tap 11 lakh LIC agents for doorstep banking services, positioning it to improve customer services and deepen financial inclusion.

• The bank would also be benefitted in terms of lower cost of funds through acquisition of low-cost deposits and fee income from payment services.

• LIC would get bancassurance (selling of insurance products by bank) through the bank's network of 1916 branches, besides access to bank's cash management services.

• LIC would gain in terms of furthering the realisation of its vision of becoming a financial conglomerate.

• The acquisition has wide-ranging synergy benefits for customers of the LIC and the bank. Customers will get access to wider offerings of financial services under one roof, and LIC being better positioned to expand life insurance coverage.
 
Background

The LIC board approved acquiring up to 51 percent stake in state-run IDBI Bank on July 16, 2018. The Insurance Regulatory and Development Authority of India (IRDAI) had already given its approval to LIC for the stake purchase.

The Life Insurance Corporation 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 move of buying additional stakes by LIC is expected to help IDBI, the debt-ridden state-owned bank, to get a capital support of Rs 100-130 billion.