IDBI Bank allots 82 crore shares to LIC

IDBI Bank allotted 82,75,90,885 equity shares to Life Insurance Corporation of India (LIC). This marks the completion of the acquisition of 51 per cent stake by LIC. 


Furthermore, the board of IDBI Bank approved the reclassification of LIC as Promoters of IDBI Bank in terms of the Shareholder's resolution passed on November 7, 2018. 

In the final tranche II of the Preferential Issue, 82,75,90,885 equity shares of IDBI were allotted at a price of Rs. 60.73 per share (inclusive of a premium amount of Rs. 50.73 per share), aggregating to Rs. 5,025.96 crore on January 21, 2019. Prior to the deal, LIC held 7.98 per cent stake in IDBI Bank. The acquisition will also dilute the government stake in IDBI Bank to 44 per cent from 85.96 per cent as of June 30, 2018.

With this acquisition, LIC now holds 51 per cent controlling stake in IDBI Bank. The total value of the deal is estimated to be around Rs. 12,000 to Rs. 13,000 crore.

The move suffered resistance from the All India IDBI Officers’ Association as it claimed the acquisition violated the provisions of the Insurance Act. According to the IRDAI Investment Regulations 2016, any insurance company cannot have an investment exceeding 15 per cent in an investee company. Likewise, the RBI guidelines clearly state that no shareholder/promoter should have more than 40 per cent shareholding in a private bank. As such, the association is concerned that the proposed privatisation of the bank will deteriorate the existing service conditions of its employees.

On the other hand, LIC seeks to venture into the banking business. However, as per Section 3 (4) (f) of the LIC Act 1938, it cannot engage in any business other than the Insurance business. The process of privatisation was initiated by the Central Government without any legislation passed by the Parliament, purely on the basis of executive orders. This clashes with the decision of the Supreme Court. On grounds of this appeal filed by IDBI Bank, the Supreme Court Chief Justice Ranjan Gogoi has agreed to hear an appeal contesting LIC’s motive on January 25, 2019.

On Monday, the shares of IDBI Bank opened at Rs. 58.00, and hit a high and low of Rs. 58.55 and Rs. 56.30, respectively, At 11:12 am, the stock was trading at Rs. 56.65 per share, down 2.91 per cent.