Insurance regulator IRDAI is asking domestic life insurance giant LIC to submit a plan to reduce its shareholdings in IDBI Bank, in order for the insurer to comply with regulatory requirements.
Insurance regulations stipulate that insurers are allowed to hold a stake of only up to 15% in any listed entity. But LIC, with a special dispensation from IRDAI, currently holds a stake of 51% in the debt-ridden bank after the IRDAI permitted it to do so last June.
"We will decide on the timeline (for the stake reduction by LIC in IDBI Bank). We are not leaving it to them. I have asked them (LIC) to give a proposal and after that we will take a decision," IRDAI Chairman Subhash Chandra Khuntia told the local media.
In June 2018, LIC obtained the insurance regulator's approval to own up to 51% stake of the listed state run bank. LIC completed the transaction in January 2019. It did this by injecting additional capital into the bank. IDBI Bank, which is loss making because of provisions for bad loans, has the highest level of gross non-performing assets at 28% of total loans among all public sector banks and was placed under the “prompt and corrective action” programme of the Reserve Bank of India.
LIC’s investment in IDBI Bank also means that the lender has to sell stake in its life insurance company—IDBI Federal Life Insurance, because under current IRDAI regulations, a single entity cannot control two competing insurance businesses. IDBI Bank has initiated the process of divesting its 48% stake in IDBI Federal Life Insurance.
Meanwhile, LIC last month instructed IDBI Bank to sell its insurance policies in its 1,890 branches throughout the country. IDBI Federal had been selling its policies through the IDBI Bank branches until now.
In a 10 March statement, the bank said that it and LIC have constituted a joint task force to chart out the future roadmap, both for the bank as also its associate companies. The major areas of synergy identified for the immediate short term are selling LIC policies through IDBI Bank branches, management of cash and other premium receipts of LIC through the bank’s branches, enabling the technical wherewithal available in both the bank and LIC to offer digital solutions to both the policyholders of LIC and customers of IDBI Bank.
The bank has also started reviewing all its policies including credit extension, investment, internal processes and risk management practices with the help of consultants.