IDBI Bank stake sale shouldn't put LIC policyholders at loss
Govt and LIC are planning to dilute their holdings to the extent that a private party can own over 60% of the IDBI Bank's equity
image for illustrative purpose
The LIC had bought the IDBI Bank's shares at about Rs 61 per share. The total investment of LIC policyholder's money in the deal was about Rs 25,000 crore. LIC acquired stakes in IDBI Bank in January 2019 and it is almost three years now during which the bank did not declare any dividends
About Rs 25,000 crore of policyholder's money of Life Insurance Corporation of India (LIC) has been invested in IDBI Bank Ltd and they should not incur a loss while the government and the insurer sell their stakes to a private party, said a union official.
"The LIC had bought the IDBI Bank's shares at about Rs 61 per share. The total investment of LIC policyholder's money in the deal was about Rs 25,000 crore," Vithal Koteswara Rao AV, General Secretary, All India IDBI Officers Association (AIIDBIOA) said. The IDBI Bank's shares are being traded on the bourses in the Rs 35 band.
Further, IDBI Bank also sells the life insurance policies of LIC and once it goes out of its fold, the life insurer may lose out a major distribution channel. Currently, a bank can sign up with only three life insurers to sell their policies and there is a tough competition out there in the market for banks.
In fact, insurers do offer attractive incentives/bonus to banks to rope in as their corporate agents.
The Indian government and LIC, the promoters of IDBI Bank hold 45.48 per cent and 49.24 per cent stakes respectively.
As per reports, the Indian government and LIC are planning to dilute their holdings to the extent that a private party can own over 60 per cent of the IDBI Bank's equity.
Rao said LIC acquired stakes in IDBI Bank in January 2019 and it is almost three years now during which the bank did not declare any dividends. An equity investment is expected to give a rate of return of 12 per cent per annum. So, the value of IDBI Bank's share should be a minimum of Rs 90, he said.
"At this juncture, if at all, LIC of India wants to sell away its shareholding in IDBI Bank, it should sell at a rate "above Rs. 90/- per share only in order to protect the interest of the policy holders as per the mandate given by IRDAI to LIC of India before acquiring 51 per cent stake in IDBI Bank," Rao added.
Any attempt to sell the stake of IDBI Bank "below Rs. 90/- per share by LIC will be nothing but deceiving its policyholders and it tantamount to unethical business practices, he stated. He said, the Insurance Regulatory and Development Authority of India (IRDAI) should ensure that LIC does not sell IDBI Bank's share at a price below Rs. 90 per share and protect the interests of policyholders.
It may be recalled that the shareholders of Lakshmi Vilas Bank (LVB) did not get anything when the bank was allowed by the Indian government to be amalgamated with DBS Bank.
Opposing the government's move to privatise the bank, Rao also said the job security of about 5,050 permanent women employees and about 390 permanent employees with disabilities (physically challenged/visually impaired) of the bank are at risk if the bank is privatised.
At an investor's conference, the IDBI Bank management said the entire process of disinvestment is being held by the Department of Investment and Public Asset Management (DIPAM) and they are basically owners of the bank -45 per cent share with Government of India and 49 per cent with LIC. Meanwhile, the Expression of Interest to acquire IDBI Bank is expected to be issued soon.
