LIC to acquire controlling stake of IDBI Bank

Cabinet approves dilution of Government shareholding below 50%

The Union Cabinet chaired by Prime Minister Shri Narendra Modi has approved conveying of no objection to reduction in Government of India shareholding in IDBI Bank Limited to below 50% by dilution.  It has also approved acquisition of controlling stake by Life Insurance Corporation of India (LIC) as promoter in the bank through preferential allotment / open offer of equity, and relinquishment of management control by the Government in the bank.

Impact:

1. The acquisition has wide-ranging synergy benefits for customers, LIC and the bank.

2. 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.

3. These 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.

4. Further, 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.

5. The bank would also be positioned to benefit in terms of lower cost of funds through acquisition of low-cost deposits, and fee income from payment services.
6. LIC would get banc assurance (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.

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

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

Background:

In 2016, the Finance Minister, in his Budget Speech 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%. Taking note of this announcement, 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.

Reduction of government shareholding enables LIC to acquire a controlling stake in IDBI, unlocking bancassurance and distribution synergies. Cabinet approval permits reduction of Government of India shareholding in IDBI Bank below 50% and allows Life Insurance Corporation of India to acquire a controlling stake as promoter through preferential allotment and/or an open offer, with the Government relinquishing management control; anticipated commercial effects include economies of scale, cross selling, access to LIC's agent network, bancassurance through the bank's branches, and lower cost of funds.