Govt may sell strategic stake in IDBI Bank to state-run LIC

MUMBAI: The government is looking at selling a strategic stake in IDBI Bank to Life Insurance Corporation (LIC) of India. The proposal is part of a plan to professionalise the state-owned lender using the Axis Bank model, which has been mooted for a long time.
LIC had earlier sought a banking licence from the Reserve Bank of India (RBI). Its arm LIC Housing Finance (LICHFL) had also made an unsuccessful application for a bank licence when the RBI had opened its licensing window in 2014. LICHFL was seen as a strong candidate for a bank licence as its home loan portfolio qualifies as priority sector. At that time, only Bandhan Bank and IDFC Bank had got their banking licence among 25 applicants.

One of the reasons why the government is looking at a state-owned investor is that the bank’s valuation is distressed. The current share price is not much higher than its all-time low of Rs 42 in 2009 when the sensex was around 8,600. On Friday, the share price gained 2% to close at Rs 59 on the back of speculation that the LIC would acquire a stake in the bank.

At present, the government is the largest shareholder in IDBI Bank, holding 81%. The stake increased following recent capital infusion. Despite the infusion, IDBI Bank is struggling with gross non-performing assets of Rs 55,588 crore, which is around 29% of its total assets. Outgoing CEO M K Jain, who this week took charge as deputy governor of RBI, had outlined a plan to sell Rs 20,000 crore of bad loans to clean up the balance sheet.

SBI managing director B Sriram has been asked to temporarily hold charge at IDBI Bank for three months. The bank has also put on the block some non-core assets, including its stake in subsidiary companies like IDBI Federal Life Insurance and IDBI Mutual Fund. The LIC has been facing criticism for bailing out IPOs of public sector companies. Most recently, the corporation had bailed out Hindustan Aeronautics by subscribing to 70% of the Rs 4,200-crore issue. In the earlier years, LIC had bailed out IPOs of ONGC and Coal India.

The corporation had defended these investments, saying that they provide an opportunity to make chunky investments and all these investments have made money in the long-term. LIC has an investment portfolio of over Rs 23 lakh crore which is growing every year. Earlier LIC had also supported the government’s bank recapitalisation plan by picking up fresh issuances by some of the weak banks.