The Insurance Regulatory and Development Authority of India (IRDAI) board has given final nod to Life Insurance Corporation (LIC) to invest in IDBI Bank.
The board allowed LIC to own up to 51 per cent in the bank. This will enable LIC to invest Rs 100-130 billion into IDBI Bank in installments via selective allotment of new equity shares at a price zeroed by a formula under the Securities and Exchange Board of India’s (SEBI’s) rules.
However, IRDAI put some stipulations and directed the insurer to slash its stake in IDBI Bank over a period of five-seven years.
“The regulator asked LIC to submit a plan with a timeline for triming its stake in the bank,” said a government official.
According to the sources, this is a mere investment for the insurance brand and it will not have any control over the bank’s management. However, it will be appointing two directors to bank’s board.
Industry experts believe that the deal will be associated with regulatory challenges. It is not clear whether the insurer’s shareholding is public in nature. However, LIC’s more than 26 per cent hold on the stake will initiate open offer.
As of now, IDBI Bank’s current public shareholding is at around 19 per cent. This is lower than SEBI’s mandated 25 per cent. LIC and IDBI Bank have to seek clarification on both issues from the market regulator.