Mumbai: State-run IDBI Bank on Tuesday said it will seek the central government's nod on Life Insurance Corporation's proposal to acquire a 51 per cent stake in the debt-ridden lender. According to a filing to the BSE, the lender received LIC's proposal to acquire the controlling stake, as a "promoter through preferential allotment of shares or open offer" on Monday.
Subsequently, the bank's board on Tuesday considered the proposal and decided to seek the government's decision in this regard.
The development comes a day after LIC's board approved the acquisition of up to 51 per cent stake in IDBI Bank.
Briefing reporters after the board meeting in New Delhi, Economic Affairs Secretary SC Garg said the sale process is likely to take place through preferential shares.
"The amount we're looking at (from stake sale) will be as per the issue of the preferential shares," he said.
Asked if an open offer would also be made for the IDBI stock, Mr Garg said this was unlikely.
"An open offer may not come about because the amount of public shareholding (in IDBI) is very small, only about 5 per cent and will not have much bearing on the stake sale," he said.
LIC will now approach the markets regulator Securities and Exchange Board of India (Sebi) for approval, as well as for clearance from the Reserve Bank of India and the government, Mr Garg said.
Insurance regulator Irdai has given its approval for the stake purchase stipulating that the interests of LIC policyholders are to be protected and reduction of LIC's stake in IDBI Bank over a period of time.
The challenges for LIC while investing in IDBI Bank are its huge non-performing assets (NPA).
IDBI Bank, whose gross non-performing assets (NPAs), or bad loans, amounted to a staggering Rs 55,600 crore at the end of the fourth quarter ended March, posted a loss of Rs 5,662.76 crore for the quarter, its numbers being pulled down further by its deteriorating NPAs.
The bank had reported a net loss of Rs 3,199.77 crore in the corresponding quarter of the 2017-18 fiscal year. It has now reported losses for the sixth successive quarter.
In addition, the employees unions in both the IDBI Bank and LIC are opposed to the deal.