NEW DELHI: The Reserve Bank of India (RBI) is open to the idea of Life Insurance Corporation of India (LIC) taking over staterun IDBI Bank, said a senior official aware of informal discussions between the regulator and the government on the matter.
The official said the central bank has indicated its willingness to clear any such deal provided the insurer reduces its stake in conformity with existing regulations.
“We have informally explained it to RBI and for now they do not see any systemic risk involved,” the official said. “There are already big banks who have insurance companies, so this is not going to be an exception,” he said, adding that the regulator will give LIC enough time to pare its stake in the lender over the next few years once the debt-laden lender is on stronger footing.
The Insurance Regulatory and Development Authority (IRDA) has already cleared a 51% stake acquisition in IDBI Bank by LIC. The insurer holds 10.82% stake in the bank and is expected to raise its stake through acquisition of fresh equity.
LIC is now expected to seek RBIs nod.
Under the current regulations, a promoter or promoter group cannot hold more than 15% of a bank and those that exceed this threshold need to bring it down over time.
“IDBI has inherent strengths and the RBI also understands that if a firm like LIC takes over, it will only add value to the lender,” said the official cited above.
RBI didnt respond to queries.
The government is also considering the hiving off of physical assets of the bank into a separate entity before any deal.
Another senior official said IDBI Bank has real estate assets worth about ₹7,000 crore and selling these to a private entity at current valuations will be a lossmaking proposition for the government. “Besides it may also lead to undue vigilance investigations,” he said.
The government feels it can sell its stake in the bank once the bad-loan situation improves and valuations rise.