Start of An Era, LIC Enters Banking Business with 51% Stake in IDBI Bank

LIC is now the owner of IDBI Bank, as the Insurance Regulatory and Development Authority of India (IRDA) on Friday approved a proposal by Life Insurance Corporation of India (LIC) to raise its stake in IDBI Bank up to 51% from the current 10.82%. IRDA has given a special relaxation to LIC to enhance share to 51%  from 15% holding cap in a single firm. 

This is the first instance where an insurance company might become the majority owner of a bank.

LIC saves government from infusing more funds into IDBI Bank. Last fiscal government already had infused as much as Rs 10,610 crore, the most by any public-sector bank (PSB).

PNB, Syndicate & Union Bank May Come Under PCA

Beside this LIC needed an exemption from relevant provisions in the Insurance Laws (Amendment) Act, 2015, and the Life Insurance Corporation Act, 1956, that bar insurers from holding more than 15% in any company. Even Section 35 of the Insurance Act restricts a life insurer from acquiring control in a non-insurance entity. These relaxations are being given by the Securities and Exchange Board of India (SEBI) and the Reserve Bank of India (RBI).

Analyst are not in favor of stock buyout as there are 10 more banks are under the RBI PCA framework, along with IDBI Bank. Government may go for similar demand in future and ask LIC to replicate such efforts in future again.

They are advising that this is against the spirit of good corporate governance as both LIC and IDBI Bank have their own mutual fund ventures.