The Union Cabinet on Wednesday approved the proposal of Life Insurance Corporation of India (LIC) to acquire a majority stake of 51% in IDBI Bank with Finance Minister Piyush Goyal saying it is a “win-win” for both entities.
“IDBI Bank will become a subsidiary of LIC. IDBI Bank will become stronger and will have better capital adequacy. It will also help it quickly to come out of the prompt corrective action framework of the RBI,” the minister said.
For LIC, it will be able to leverage IDBI Bank’s branches for sale of its insurance policies, Goyal said, adding it’s a win-win for both.
LIC will now approach the RBI and Insurance Regulatory and Development Authority of India for the regulators’ approval for the deal estimated in between Rs 10,000 crore and Rs 13,000 crore.
“The Union Cabinet chaired by Prime Minister Narendra Modi has approved acquisition of controlling stake by LIC as promoter in the bank through preferential allotment / open offer of equity, and relinquishment of management control by the government in the bank,” an official statement said after the meeting.
The deal is expected to financially strengthen both LIC and the IDBI bank, as well as their subsidiaries which offer financial products such as housing finance and mutual funds.
Further, IDBI is expected to get an opportunity to tap 11 lakh LIC agents for doorstep banking services, positioning it to improve customer services and deepen financial inclusion.
The bank would also be positioned to benefit in terms of lower cost of funds through acquisition of low-cost deposits, and fee income from payment services.
LIC would get bancassurance (i.e. selling of insurance products by bank) through the bank's network of 1,916 branches, besides access to bank's cash management services.
