NEW DELHI - The Life Insurance Corporation of India's (LIC) board on Monday approved a proposal to acquire a 51 percent stake in IDBI Bank, in a move that will provide the embattled lender much-needed capital to set aside for bad loans.
LIC, which already owns about 8 percent of IDBI, will most likely buy additional shares in the lender via a preferential issue, Indian government's economic affairs secretary, Subhash Chandra Garg, told reporters on Monday.
If needed, the insurer will make an open offer to minority shareholders in the bank, said Garg, who is on the board of LIC, but added that would not be material as the public shareholding in the bank is low.
The Indian government, which has about an 86 percent stake in IDBI, has in the past wanted to privatise IDBI by ceding control, but its plan did not succeed amid the bank's deteriorating financials.
The Reserve Bank of India (RBI) has initiated a so-called prompt corrective action on IDBI Bank, which has the highest bad-loan ratio among all banks in the country, and 10 other Indian state-run lenders.
LIC, fully owned by the Indian government, is typically a big investor in share sales including initial public offerings of state-run companies.
The pricing of its IDBI stake is yet to be known.
IDBI shares fell as much as 7 percent in intraday trade, but recovered after the news of the LIC deal to trade 0.4 percent higher at 57.40 rupees ($0.8363) by 0855 GMT.