InvestorQ : Does LIC and the government plan to sell their entire stake in IDBI Bank or will they still retain some stake?
Sam Eswaran made post

Does LIC and the government plan to sell their entire stake in IDBI Bank or will they still retain some stake?

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Moii Chavate answered.
3 months ago
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When the strategic sale of IDBI Bank was first announced, the intent was to divest the total stake of the government and LIC in IDBI Bank. They jointly hold 94.72% stake in IDBI Bank. However, not there seems to be a change of heart. In a recent interaction on the pricing of the LIC IPO, the chairman of LIC, M R Kumar, hinted that LIC may prefer to retain some of their stake in IDBI Bank, rather totally exiting the bank, as originally stated.

Apparently, LIC sees synergy in pushing through the bancassurance model deeper using the IDBI Bank branch network. That is not surprising. For instance, large private insurers like SBI Life, ICICI Prudential and HDFC Life stoutly leverage their banking channel to generate leads and prospects for their life and non-life insurance business. Such cross selling via the bancassurance channel leads to deeper relationships and also better ROI.

It may be recollected that in Jan-19, LIC had purchased an additional 82.46 crore equity shares of IDBI Bank to raise their holdings above 51%. To avoid making LIC a promoter, this stake was brought down to 49.24% in early 2020, via QIP route. That is where the holding stays as of date. With the government holding 45.48% in IDBI Bank, the combined holding stands at 94.72% and government anyways holds 100% in LIC (95% post IPO).

One ostensible reason for this change of heart is that government still has a say in IDBI Bank. Post LIC IPO, government will hold 95% in LIC. If government sells out fully and LIC reduces its stake from 49.24% to 27.4%, then the effective government stake is still 26% in IDBI Bank. However, Kumar of LIC has clarified that the decision is purely driven by their interest in the bancassurance channel of IDBI Bank, and nothing else. Size of stake is not known.

LIC has already filed DRHP for the IPO in early February 2022 and will most likely tap the IPO market in March 2022. The total mobilization could be anywhere between Rs.63,000 crore and Rs.78,000 crore in current financial year. The good news is that since IDBI Bank is already out of prompt corrective action (PCA) framework in Mar-21, it can even expand its presence in India subject to continuous monitoring by the RBI and the steering committee.

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