LIC may have to pay premium for IDBI non-core assets

NEW DELHI: State-run Life Insurance Corporation may need to pay a premium for IDBI Bank’s real estate and non-core assets, two officials aware of the matter said.

IDBI Bank has started valuing its assets before making a preferential issue of shares to LIC, which is set to acquire a majority stake in the lender. The valuation exercise is expected to be completed by August 15, one of the officials said, adding that the sum-of-the-parts value would be more than what the stock price currently suggests.

“The stock price is not the real valuation of IDBI Bank. This exercise will help to arrive at the value of the firm taking into consideration all its assets,” said the official, adding that this would help the bank get more capital and strengthen itself quickly.

IDBI Bank’s gross NPAs rose toRs 55,588 crore in March 2018 fromRs 44,753 crore a year earlier. The market capitalisation of IDBI Bank is nearly Rs 26,000 crore, based on Friday’s closing stock price of Rs 61.90 on the BSE. The preference issue would increase LIC’s stake in the government-run bank to 51% from the current 7.98%.

“Realty and non-core entities of IDBI Bank are valued at around Rs 14,000 crore and this has to reflect in the final price,” said the second official.

The board of IDBI Bank would first approve the new price arrived at after the valuation exercise and then share the details with LIC, the officials said. The insurer would then seek its board approval and thereafter IDBI and LIC would jointly approach banking regulator Reserve Bank of India. “We expect them to finalise this before September,” said a finance ministry official.

IDBI Bank has started valuation of its shares and evaluating LIC’s investment proposal, which the Cabinet cleared last week. The Cabinet has given its “no objection” to the preferential allotment of shares or open offer that will reduce the government’s stake in the bank below 50% and relinquishment of management control, a government statement said.

The Cabinet said LIC and IDBI Bank would both benefit from economies of scale, reduction in the costs of distribution and customer acquisition, greater efficiency and flexibility in operations, and better opportunity for cross-selling of products and services.

LIC Housing Finance Ltd