IDBI Bank soars 6% after insurance regulator approves LIC 51% stake buy

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IDBI Bank’s shares rose around 6 percent in morning trade on Monday after the imminent deal between the lender and LIC was announced late on Friday.

The stock touched an intraday high of Rs 58.00 and an intraday low of Rs 56.35.

The Insurance Regulatory Development Authority of India (IRDAI) on Friday allowed Life Insurance Corporation of India (LIC) to invest up to 51 percent in IDBI Bank.

Sources told Moneycontrol this is a special case dispensation that has been given to LIC and the 15 percent equity investment cap still remains. According to the regulator's norms on investment, insurance companies cannot hold more than 15 percent stake in any company.

"They presented us this proposal and the board has given a go-ahead to them for this case," said a senior IRDAI official.

However, the official added, IRDAI will have to be apprised on the deal process, timeline, and other information.

LIC will also have to gradually bring back down the stake to below 15 percent. In the next few days, LIC will be presenting a detailed structure, including the subsidiary model, capital infusion as well as the timeline by when it expects to bring the stake down, the source said, adding, it could take 7-10 years.

IDBI Federal Life will continue to be promoted by IDBI Bank and LIC will have no control over it.

LIC holds 10.8 percent in IDBI Bank and will buy the additional stake using the policyholder account funds.

As per Securities and Exchanges Board of India (SEBI) norms, IDBI Bank will now have to seek an exemption from a panel under section 11 of the Takeover Code to make an open offer.

The stock has seen some volatility in the recent past, losing over 13.5 percent in the past one month, but has gained around 11 percent in the past three days. At 09:50 hrs IDBI Bank was quoting at Rs 56.50, up Rs 1.60, or 2.91 percent, on the BSE.