The Cabinet Committee on Economic Affairs, chaired by Prime Minister Narendra Modi, has given its in-principle approval for strategic disinvestment along with transfer of management control in IDBI Bank Ltd, government said on Wednesday. The extent of respective shareholding to be divested by GoI and LIC shall be decided at the time of structuring of transaction in consultation with RBI.
Government of India (GoI) and LIC together own more than 94% of equity of IDBI Bank (GoI 45.48%, LIC 49.24%). LIC is currently the promoter of IDBI Bank with Management Control and GoI is the co-promoter.
LIC’s Board has passed a resolution to the effect that LIC may reduce its shareholding in IDBI Bank Ltd. through divesting its stake along with strategic stake sale envisaged by the government with an intent to relinquish management control and by taking into consideration price, market outlook, statutory stipulation and interest of policy holders.
This decision of LICs Board is also consistent with the regulatory mandate to it to reduce its stake in the Bank.
“It is expected that the strategic buyer will infuse funds, new technology and best management practices for optimal development of business potential and growth of IDBI Bank Ltd. and shall generate more business without any dependence on LIC and Government assistance/funds. Resources through strategic disinvestment of government equity from the transaction would be used to finance developmental programmes of the government benefiting the citizens,” said government.
The RBI, in March, removed IDBI Bank from its enhanced regulatory supervision or Prompt Corrective Action (PCA) framework after a gap of nearly four years on improved financial performance.
The Reserve Bank of India (RBI) had placed IDBI Bank under PCA framework in May 2017, after it had breached the thresholds for capital adequacy, asset quality (net NPAs was over 13 per cent in March 2017), return on assets and the leverage ratio.
The performance of IDBI Bank was reviewed by the Board for Financial Supervision (BFS) in its meeting held on February 18, 2021.
It was noted that as per published results for the quarter ending December 31, 2020, the bank is not in breach of the PCA parameters on regulatory capital, net NPA and leverage ratio, the RBI said.
The bank has also provided a written commitment that it would comply with the norms of minimum regulatory capital, net NPA and leverage ratio on an ongoing basis and has apprised the RBI of the structural and systemic improvements that it has put in place which would help the bank in continuing to meet these commitments.
