Insurance behemoth LIC on Monday completed the acquisition of 51 percent controlling stake in IDBI Bank, marking the entry of more than 60 years old state-owned insurer into the banking space.
With the acquisition of controlling stake by LIC, IDBI Bank will now become private sector lender. The number of public sector lenders has come down to 20 with the government transferring its majority stake in favour of LIC.
"The deal, conceptualised in June 2018, is envisaged as a win-win situation for both IDBI Bank and LIC with an opportunity to create enormous value for shareholders, customers & employees of both entities through mutual synergies," IDBI Bank said in a BSE filing.
In August last year, the Cabinet approved the acquisition of controlling stake by Life Insurance Corporation (LIC) as a promoter in the bank through a combination of preferential allotment and open offer of equity.
LIC had been looking to enter the banking space by acquiring a majority stake in IDBI Bank, as the deal is expected to provide business synergies despite the lender's stressed balance sheet.
The bank had reported a net loss of Rs 3,602.49 crore during the September quarter of 2018-19. Its gross non-performing assets hit 31.78 per cent (Rs 60,875.49 crore) of the gross advances as on September 30, 2018, as compared with 24.98 per cent in the year-ago period.
IDBI Bank has about 1.5 crore retail customers and about 18,000 employees. With this deal, LIC will have a strategic investment in a large bancassurance channel, thereby increasing its productivity and reducing distribution costs.
Over 1,800 branches of IDBI Bank can be used as touch points for selling LIC policies and more than 900 of the bank's branches are also proposed to be enabled for settlement payments via NEFT, it said.
IDBI Bank said it would significantly increase its investments in building data analytics capabilities to analyse customer behaviour of both the entities.
This will enable the bank to enhance its product offerings, reduce distribution cost, de-risk portfolio and support retail business build, it added.
IDBI Bank said its retail loan portfolio is expected to reach 50 per cent by fiscal 2019-20.
"IDBI Bank and LIC have started working to ensure full realisation of their synergies over the next 12 months. Improved financial health will pave the way for the bank to exit from prompt corrective action (PCA) in a time-bound manner and be a future-ready, top-ranked bank. LIC and IDBI Bank are committed to serve the interests of all stakeholders," the bank said.
Of the 21 state-owned banks, 11 are under the PCA framework. These are Allahabad Bank, United Bank of India, Corporation Bank, IDBI Bank, UCO Bank, Bank of India, Central Bank of India, Indian Overseas Bank, Oriental Bank of Commerce, Dena Bank and Bank of Maharashtra.
In order to revive the fortune of the bank, the IDBI Bank board Monday approved in-principle, the proposal to reinitiate divestment process of the bank's stake in IDBI Federal Life Insurance.
Meanwhile, the board also decided to continue with the existing top management, including Rakesh Sharma as the managing director of the bank.
The board of "IDBI Bank has in its meeting held on January 21 approved continuation of office of Rakesh Sharma, K P Nair and G M Yadwadkar as directors and as MD & CEO and DMDs (deputy managing director), respectively, of the bank till such time as the board approves appointment of" new management following the due process", it said.
The bank's board also approved the appointment of Rajesh Kandwal as an additional director and LIC's nominee director on the board of IDBI Bank.
Kandwal is the director and the chief executive officer of LICHFL Care Homes Ltd.
With the acquisition of 51 per cent, LIC can appoint three more directors on the board of IDBI Bank.However, the board is yet to take any call with the change of name of the bank as LIC has strong brand value.