LIC may enter banking sector; eyes majority stake in IDBI Bank

New Delhi: Insurance behemoth LIC is looking to enter the banking space by acquiring majority stake in IDBI Bank as the deal is expected to provide business synergies despite the lender’s stressed balance sheet, sources said.
As the government makes efforts to revive the fortunes of IDBI Bank, which is saddled with huge amounts of bad loans, LIC becoming a major stakeholder in the lender could be beneficial for both state-owned financial players in the long run, they added.
While a final decision is yet to emerge on whether LIC would be snapping up over 50 per cent stake in IDBI Bank, official sources said the preliminary contours of such a plan is being worked out.
A possible scenario would be the insurance major making IDBI Bank as a subsidiary on the line of its housing finance and mutual fund businesses. According to the sources, there would be business synergies in case the LIC-IDBI Bank deal materialises.
A listed entity, IDBI Bank is grappling with mounting toxic loans with gross non performing assets rising to a staggering Rs 55,600 crore at the end of latest March quarter. During the three months, the lender’s net loss stood at Rs 5,663 crore.
The bank has a market capitalisation of nearly Rs 23,000 crore while its real estate assets as well as its investment portfolio are estimated to be worth over Rs 20,000 crore.
Among its non-core assets are investments in the National Stock Exchange, IDBI Federal Life Insurance IDBI Mutual Fund, IDBI Capital Markets and National Securities Depository Ltd.
Taking into consideration these factors, the current valuation of the bank does not reflect its “inherent fundamentals” and at this juncture, it would be a better proposition to rope in a state-owned entity as a strategic investor, the sources said. Shares of the bank slumped nearly 7 per cent to close at Rs 54.50 on the BSE on Tuesday.