The board of insurance behemoth LIC approved the acquisition of 51 percent stake in IDBI Bank in a meeting held on Monday.
The company is expected to increase its stake in the bank via preferential shares, said Subhash Chandra Garg, economic affairs secretary, adding that the deal would require a nod from Sebi and RBI.
It would also need an approval from the government, added Garg.
Garg also mentioned that the deal needed to be closed in one go "otherwise the objective of getting 51%(stake) is lost".
The due diligence process by LIC is complete as per the directions of Insurance Regulatory and Development Authority of India (Irdai), the insurance firm had said.
Irdai at its meeting held in Hyderabad last month had permitted LIC to increase its stake from 10.82 percent to 51 percent in IDBI Bank.
As per current regulations, an insurance company cannot own more than 15 percent in any listed financial firms.
State-owned Life Insurance Corporation will now approach market regulator Sebi. As per Sebi takeover code, an acquirer has to give an open offer to the shareholders of target company on acquiring shares or voting rights of 25 percent or more.
"The LIC-IDBI Bank deal will trigger an open offer to protect the interest of minority shareholders in the bank," a source was quoted by PTI.
While JN Gupta, former executive director, Sebi, said that no open offer would be required under takeover code if the promoter is the same.
However, he said if the acquisition is via issue of preferential shares, then the open offer may have to be made.
DK Mittal, former financial services secretary said that RBI should insist on getting all the money from the deal in one go and that the central bank must prescribe divestment road map with regards to LIC's holdings in various banks.
The move will help the debt-ridden state-owned bank get a capital support of Rs 10,000- 13,000 crore.
(With inputs from PTI)