The Life Insurance Corporation of India (LIC) Board approved the proposal of acquiring 51% of state run bank IDBI Bank. Government is aiming to make IDBI bank a vulnerable dynamic bank like Axis Bank.
- This acquisition is likely to be through issue of preferential shares.
- This is likely to bring some relief to IDBI Bank, through change of its fortunes.
- As of now LIC hold around 7.98% hold in the said bank, which is facing a huge bad debts crisis
- The shares to be issued might be through preferential issues, to augment the bank’s capital required.
- The other option is LIC can borrow from the Government. However, this would not provide any capital to IDBI Bank.
- IDBI would be holding a Board meeting, to approve the transaction which is likely to be to the tune of Rs. 12,000 crore.
- LIC is likely to get four seats on the IDBI board
Advantages to LIC:
- Through the deal LIC will get 2000 branches of IDBI Bank, through which they can comfortably sell their products.
- Monetisation of IDBI’s real estate and non-core assets of value Rs. 14,000 is also another benefit that LIC would get.
Criticism:
Critics have added that the premium amount paid to LIC by public will be utilized to bail out IDBI Bank which is not correct.
- LIC Unions have opposed the proposal on the ground that it will hurt the interest of policy holders.
- IDBI union adds that the Government had given an assurance on the floor of parliament that it would not allow its stake to drop below 51% but have backed out now, which has prompted them to go for a strike program which they will announce soon.
Note:
- As of now Government holds 85.96 stake in the bank
- IRDA has already provided necessary approval for LIC’s acquisition
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