New Delhi, August 1: In a major development in LIC-IDBI deal, the Cabinet on Wednesday cleared the purchase of 51 per cent controlling stake in IDBI Bank by state-run insurer Life Insurance Corporation (LIC). LIC already has 7-7.5 per cent stake in the bank and will acquire the remaining for majority holding. As per the proposal, the debt-laden bank will issue preferential shares to Life Insurance Corporation (LIC) to raise capital.

Although the proposed acquisition by LIC would not bring any money to the government, the bank would get capital support between Rs 10,000 crore and Rs 13,000 crore, depending on the share price of the bank. The decision would help financially strengthen both LIC and the bank, as well as their subsidiaries which offer financial products such as housing finance and mutual funds.

The government has also approved the acquisition of controlling stake by Life Insurance Corporation of India (LIC) as a promoter in the bank through preferential allotment / open offer of equity, and relinquishment of management control by the Government in the bank. The acquisition has wide-ranging synergy benefits for customers, LIC and the bank.

Impact of the deal would be as follows:

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

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

  • Benefits to the two entities emanate from economies of scale, reduction in the costs of distribution and customer acquisition, greater efficiency and flexibility in operations, and greater opportunity for cross-selling of products and services.

  • LIC would get bancassurance (i.e. selling of insurance products by bank) through the bank's network of 1,916 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.

  • Customers too would benefit through wider offerings of financial services under one roof, and LIC is better positioned to expand life insurance coverage.

To recall, Union Finance Minister Arun Jaitley in his Budget Speech in 2016 had announced that the process of transformation of IDBI Bank has started and that Government will take it forward and also consider the option of reducing its stake below 50%. With the approval of its Board, LIC sought permission of the Insurance Regulatory and Development Authority of India (IRDAI) for acquiring controlling stake in IDBI Bank.

After receipt of IRDAI's permission and carrying out diligence, LIC expressed its interest in acquiring 51% controlling stake to IDBI Bank. The bank in turn, after consideration of this offer by its Board, sought Government's decision in the context of Government's stake coming down below 51% as a result of the proposed acquisition.

(The above story first appeared on LatestLY on Aug 01, 2018 07:26 PM IST. For more news and updates on politics, world, sports, entertainment and lifestyle, log on to our website latestly.com).