The Life Insurance Corporation of India (LIC) may acquire about 30% additional stake in IDBI BankNSE -5.97 % primarily through the issuance of fresh equity shares by the beleaguered bank.
The government holds an 80.96% stake in the firm and the deal may involve both real estate and non-core entities of IDBI Bank valued at around Rs 14,000 crore. LIC has a 10.82% stake in IDBI Bank.
A senior government official said the current market valuation of IDBI Bank at around Rs 24,000 crore does not reflect its inherent value. “The bank has real estate worth around Rs 7,000 crore and also non-core assets of a similar amount. The bank is in the process of a turnaround and will post profits soon,” he said, adding that the deal structure is still being worked out. There is a view in the government that this would be a win-win deal for all participants given that going forward IDBI Bank’s valuations are expected to rise considerably.
“The bank has a healthy provision coverage ratio of 63.4% and as bad loan cases get resolved through the bankruptcy code, IDBI’s additional provisioning requirement is likely to reduce,” the official said. The bank’s bad loans are mostly highvalue accounts likely to be resolved through the Insolvency and Bankruptcy Code (IBC) in the next one year, he said.
The view within the government is that selling IDBI Bank to a private player may not yield the best best value. “LIC will also pare its stake in line with Reserve Bank of India norms,” another government official said. The government will also realise significant gains when it decides to lower its stake further, he said. Experts feel the government should not shy away from selling its stake to non-state entities instead of LIC.
“There is no weight in the argument that IDBI will benefit from all resolutions under the NCLT (National Company Law Tribunal). Already, in some cases, we have seen banks taking haircut of up to 80%,” said MP Shorawala, a former independent director with Central Bank of India. “Also, the bancassurance partnership doesn’t benefit LIC much (as it) mostly operates through its own agents.” A senior LIC official said that it would only be keen on a deal if the real estate assets also come with the bank.