INSUBCONTINENT EXCLUSIVE:
Bank and rescue it from a crippling crisis caused by massive rise in bad loans
The Mumbai-based lender has the highest bad loans in the industry at nearly 28% of total advances and posted aloss of Rs 5,663 crore last
This will provide a breather to the bank and give it the means to address some of its biggest problems
cutting its stake from 51% in the next few years and bring it on par with norms for other insurers
This is the first time that the insurance regulator has eased its investment rules to such an extent
The Insurance Regulatory and Development Authority (Investment) (Fifth Amendment) Regulations, 2013 allows insurers with assets of over Rs
2.5 lakh crore to buy up to 15% equity in a company.
Under special provisions, LIC can hold up to 30% with the approval of the government,
investment committee and the regulator
With LIC coughing up the money, the government has one less bank to deal with whenever it considers capital allocation for public sector
While the government was keen on LIC playing a big role, officials at the insurer and the regulator kept mum on the issue
(PCA) rules and therefore may not be a viable investment proposal for LIC
Banks under PCA are barred from lending though they can continue accepting deposits
Under normal circumstances, LIC would have found it difficult to invest in IDBI Bank
The proposal was also not on the agenda of Irdai as it was a routine quarterly board meeting fixed weeks earlier
But it was a tabled matter which meant that the board members had to discuss it
The deal may have to climb another regulatory hurdle at the Reserve Bank of India
partner Ashvin Parekh Advisory Services
by investing Rs 9,000 crore in the bank
IDBI Bank has a market cap of Rs 22,954 crore
Shares of the company jumped 10.02% on news of LIC taking over the majority shareholding in the bank
During the last financial year, government and LIC infused equity capital of Rs 12,471 crore and Rs 394 crore, respectively in the Bank
IDBI Bank is also in the process of selling non-core assets to free up capital and meet regulatory capital norms
The bank had posted a loss of Rs 5,663 crore in the fourth quarter on higher provisions
It has put the life insurance subsidiary with Aegis and Federal Bank on block a year ago though the deal is still under works
