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LIC may propose 3-5 year time for IDBI Bank stake cut
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SME Times News Bureau | 18 Mar, 2019
The country's largest life insurer Life Insurance Corporation (LIC) may
propose a timeline of 3-5 years for cutting down its stake in the
recently acquired IDBI Bank to comply with insurance regulator Irdai's
norm of 15 per cent stake in a listed investee firm.
Investment
returns at right price will the hold key for the LIC to pare its stake
in IDBI Bank. Also, the market conditions have to be right.
Cutting
down from a high of 51 per cent stake will take longer and cannot be
done in months, sources said, adding that the same may be conveyed by
the LIC to the Insurance Regulatory and Development Authority of India
(Irdai). The decision is yet to reach finality, they said.
Irdai
has sought proposals on such a timeline from the LIC management for
reducing its stake in IDBI Bank. The regulator's direction on timeline
can impact IDBI Bank's stock prices, which is the reason it wants the
LIC to propose a time period for stake reduction on which the regulator
will take a call.
At present, the permissible limit for an
insurer to hold stake in any listed entity is 15 per cent. But the LIC,
with special dispensation from Irdai, holds more than this in some
state-run banks like the Corporation Bank.
Recently, Irdai
Chairman Subhash Chandra Khuntia had said: "We will decide on the
timeline on the LIC paring its stake in IDBI Bank. We are not leaving it
to them. I have asked them to submit a proposal and after that we will
take a decision."
LIC holds 51 per cent stake in IDBI Bank under a
specific permission from Irdai, but under the condition that it will
bring it down.
LIC had announced the completion of the
acquisition of 51 per cent controlling stake in the near crippled IDBI
Bank, which made it the majority shareholder of the bank in January this
year.
The near Rs 20,000 crore deal has seen the IDBI Bank,
which is under the Reserve Bank of India's Prompt Corrective Action
(PCA) framework, receiving Rs 5,030 crore in January and Rs 14,500 crore
in December 2018. As a result, LIC acquired 51 per cent controlling
stake in IDBI Bank, making the insurer the lender's majority
shareholder.
Besides, the RBI permits a ceiling of 15 per cent
for promoter stake in a private sector bank. Recently the RBI has
re-categorised IDBI Bank as a private sector bank.
For the third
quarter ended December 2018, IDBI Bank reported widening of losses by
nearly threefold to Rs 4,185.48 crore. The bank had reported a loss of
Rs 1,524.31 crore in the year-ago period. Its total income fell to Rs
6,190.94 crore for the quarter, compared to Rs 7,125.20 crore in the
corresponding period a year ago.
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