The Cabinet today approved Life Insurance Corp's proposed acquisition of up to 51 per cent stake in debt-ridden IDBI Bank, with Finance Minister Piyush Goyal saying it would be an "excellent deal".
Briefing reporters after the Cabinet meeting here, Goyal also said that the proposed deal would be a win-win for both LIC and IDBI Bank, amid concerns in various quarters about the move.
Post the transaction, IDBI Bank would become a subsidiary of LIC and the insurer would have 51 per cent stake.
Currently, LIC holds 7.98 per cent stake in the debt-ridden public sector bank.
An official release said the acquisition would have wide-ranging synergy benefits for customers, LIC and the bank.
"Benefits to the two entities emanate from economies of scale, reduction in the costs of distribution and customer acquisition, greater efficiency and flexibility in operations, and greater opportunity for cross-selling of products and services," it added. The Cabinet today approved "conveying of no objection" to reduction in government's shareholding in IDBI Bank to below 50 per cent by dilution.
The acquisition of controlling stake by LIC as promoter in the bank would be through preferential allotment/open offer of equity, and relinquishment of management control by the government in the bank, the release said.
Sources said the bank would be getting a capital support of about Rs 13,000 crore from LIC, depending on the share price of the bank.
"I think some people have completely wrong impression that LIC-IDBI Bank deal has negative impact on the LIC. On the contrary, I would like to tell the nation that this deal is going to be an excellent deal for LIC," Goyal said.
He also said the bank would be positioned to benefit in terms of lower cost of funds through acquisition of low-cost deposits, and fee income from payment services.
IDBI Bank would get an opportunity to tap 11 lakh LIC agents for doorstep banking services, positioning it to improve customer services and deepen financial inclusion, the release said.
LIC would get bancassurance -- selling of insurance products by bank -- channels through IDBI Bank's network of 1,916 branches and access to bank's cash management services.
Goyal said the government has already made a capital infusion of about Rs 16,000 crore in IDBI Bank and that LIC would be getting a "strong organisation which has capacity not only to service its debts but also strengthen and grow from here onwards".
Sources said the government would seek more time from the RBI for LIC to pare its stakes in other banks as per regulatory requirements.
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