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MUMBAI: The LIC-IDBI Bank transaction may have been approved by the insurance regulator, but it may be a while before it sees closure as it needs the Reserve Bank of India’s approval and a possible amendment to the Life Insurance Act.
The deal will have to go through Parliament as the LIC Act needs amendment as the current Act has restrictions on the insurer taking over any company.
It will be put up for amendment during the monsoon session starting July 18.
Irdai had approved the deal citing provision in the LIC Act Section 6 (2) H, which allows LIC “to carry on any other business which may seem to the Corporation to be capable of being conveniently carried on in connection with its business and calculated directly or indirectly to render profitable the business of the Corporation.” However, there are restrictions to an insurer taking over a company.
“Irdai approval is subject to RBI and Sebi approvals,” said a senior Irdai official, on condition of anonymity.
“We are supporting it subject to approval from other regulators.”
While approving the deal, RBI will have to decide on the number of years the LIC can take to bring its stake down to 40 per cent from 51 per cent.
“The bank is going for an independent board,” said the official “Once the bank’s performance picks up, LIC will reduce its stake to 15 per cent .” “Approval from RBI will depend upon the kind of scheme LIC has submitted,” said Ashvin Parekh, managing partner, Ashvin Parekh Advisory.
“The approval would largely depend on whether the investment is a financial or strategic one.”
As far as the banking regulator is concerned, it had examined LIC as a promoter of a bank, when it had applied through its subsidiary, LIC Housing Finance, to become a bank in 2012.
Of the 26 applicants, IDFC and Bandhan were given licences.
Though RBI does not give a reason for not giving a licence, it assesses the ‘fit and proper’ status of the applicants on the basis of financial soundness, past record of sound credentials, integrity and diversified shareholding.
LIC, with corpus of around Rs 30 lakh crore, will pay around Rs 10,000-13,000 crore to the government for a 51 per cent in IDBI Bank.
“If you look at the assets of LIC, investment into IDBI Bank is only 0.4 per cent of the corpus,” said the official.
Besides approval from RBI, the insurance regulator will take a call on issues regarding subsidiaries of IDBI Bank, including IDBI Federal Life Insurance.
