Cabinet clears IDBI-LIC deal; bank to be LIC's subsidiary post-acquisition

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26 Aug, 2025 12:21

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The Cabinet Committee of Economic Affairs (CCEA) on Wednesday approved Life Insurance Corporation's (LIC) proposal to own controlling stake in state-owned IDBI bank. The move paves way for LIC to acquire 51 percent in the public sector bank consequently taking the government's stake down from current 80.96 percent to around 45 percent.

"Government has infused capital to the tune of Rs 16,000 crore since 2015... For further capital infusion, expansion of the bank's reach and bringing professional management at the bank, Cabinet has approved LIC to take over IDBI Bank," interim finance minister Piyush Goyal told reporters.

The acquisition will make IDBI Bank a subsidiary of the state-run insurance corporation.

"IDBI will be a 51 percent subsidiary of LIC," Goyal said.

The board of IDBI bank was awaiting Centre's approval to accept LIC's offer to acquire the stake in the bank.The State-run insurance corporation had proposed to increase its stake in the bank after its board gave nod to the move on July 16th.

LIC holds 10.82 percent stake in the bank at present and will buy additional 40-45 percent after the approval from the Cabinet. The bank will issue fresh equity shares to be taken up by LIC.

"Boards of both LIC and IDBI Bank have approved the acquisition... IRDAI has also given in-principle approval... Once the final approval by IRDAI is received, due diligence will be done and fresh equity will be issued to LIC by IDBI," Goyal said.

Rubbishing the negative impact of the deal on LIC, Goyal said that the deal is a "win-win" move for both the entities.

"Just like every other insurance company is attached to a bank, LIC will now be attached to IDBI Bank... The move will help LIC get 2,000 bank branches of the bank to market it's policies across country..." he said adding that post deal, income of the bank will increase coupled with a fall in cost of funding (policies).

The move will also help IDBI Bank to come out of prompt corrective action (PCA) in future, the minister said adding that the synergies from the merger will help both LIC and IDBI bank to have "better customer acquisition and flexibility of operation".

LIC received IRDAI's (Insurance Regulatory and Development Authority of India), approval to hold more than 15 percent stake in the bank.

As per insurance laws, an insurer can only hold 15 percent stake in a single investee company. LIC will be an exception to this and hence required special permission from IRDAI.

IRDAI had approved the deal on the condition that the life insurer will gradually bring its stake in the bank down after a few years.

Sources said that the process will take at least 5-7 years during which LIC will help the bank to recover, after which it will reduce its stake considerably.

The approval is a green signal for LIC to infuse capital in debt-laden bank whose gross non-performing assets stood at 27.95 percent at the end of Q4FY18.

During the fourth quarter of FY18, IDBI Bank's provisions for non-performing assets rose by 77.9 percent to Rs 10,773.30 crore from Rs 6,054.39 crore in the year-ago period.

The deal now awaits go-ahead from the Reserve Bank of India and Securities Exchange Board of India (SEBI).

According to SEBI's takeover code rules, the acquiring company has to give an open offer to the shareholders of the target company in order to acquire shares or voting rights equal to or more than 25 percent. Since LIC will have controlling stake through preferential share route, it needs an exemption from the stock exchange regulator.