The Union Cabinet is likely to give its approval soon for selling part of the Centre's stake in public sector IDBI bank to Life Insurance Corporation. The move will fulfill a Budget promise that then Finance Minister Arun Jaitley had made two years ago in 2016-17.

The next big priority of the government on economic front is merger of a few big and small banks in the current fiscal ending March 2019 to help them tide over their non-performing assets. IDBI with a huge NPA is one of them, a source said.

He said in the latest meeting with bankers last week, Finance Minister Piyush Goyal had discussed the issue.  State Bank of India Chairman Rajnish Kumar had earlier been asked to give a detailed presentation on the matter.

The government currently holds 81% share in IDBI but wants to bring it down to below 50%. It has been looking to sell its stake for past many months but hardly any buyer has come forward.

LIC has evinced interest in buying 43% in IDBI bank, which has the highest non-performing assets among state-owned lenders. This will take LIC's total stake in IDBI to 51% and also take care of the lender's stressed loan books to a certain extent.

Sources said the insurance regulator – Insurance Regulatory and Development Authority of India (IRDAI) – is expected to tweak LIC's shareholding norms as the state-owned insurer is not allowed to own more than 15% in a public sector bank.

IDBI was earlier put on prompt corrective action (PCA) by the Reserve Bank of India due to mounting bad loans and negative return on assets. Thereafter, it set in motion a host of turnaround steps, including reducing bad loans and maximising recoveries, focussing more on retail loans, cutting down on interest expenses by redeeming high-cost bonds, bringing down operating expenses by closing down unviable ATMs and branches, and monetising non-core assets.

However, its net losses widened to Rs 5,663 crore in March quarter. The bank also reported its highest ever gross NPA ratio at 27.95%, up 323 basis points sequentially.