Cabinet approves LIC’s acquisition of 51% stake in IDBI Bank

Cabinet approves LIC’s acquisition of 51% stake in IDBI Bank

NEW DELHI:Union Cabinet, chaired by Prime Minister of India Narendra Modi has cleared the Life Insurance Corporation’s acquisition of 51 per cent stake in the debt-ridden IDBI Bank.nnThe approval of the deal means LIC will raise its stake in the bank from the current 8 per cent to 51 per cent, which makes makes it a majority holder. As per the proposal, IDBI Bank will issue preferential shares to LIC to raise money.nnThe LIC stake buy will help the bank get capital support of Rs 10,000-13,000 crore. With the acquisition of a majority stake, LIC is expected to appoint at least four members on the bank’s board.nnIt 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.nnImpact:nnThe acquisition has wide-ranging synergy benefits for customers, LIC and the bank.nnBenefits 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.nnThese 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.nnFurther, 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.nnThe 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.nLIC 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.nnFurther, LIC would gain in terms of furthering the realisation of its vision of becoming a financial conglomerate.nnCustomers too would benefit through wider offerings of financial services under one roof, and LIC being better positioned to expand life insurance coverage.nnBackground:nnIn 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%.nnTaking 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.nnAfter receipt of IRDAI’s permission and carrying out diligence, LIC expressed its interest in acquiring 51% controlling stake to IDBI Bank.nnThe 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.

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