Public sector insurer LIC has said that it will retain a part of its stake in IDBI Bank to take advantage of the bancassurance channel.
Along with the government, Life Insurance Corporation (LIC) will also sell its stake in IDBI Bank, but may not exit completely, LIC Chairman MR Kumar told PTI in an interview.
LIC is currently conducting a roadshow for its first public issue, which will open for subscription on May 4.
The government has been planning to sell its 45% minority stake in IDBI Bank to strategic investors as part of its privatization drive for the past few years.
Last week, Department of Investment and Public Asset Management (DIPAM) secretary Tuhin Kanta Pandey had said that IDBI Bank’s privatization process is underway and the quantum of stake sale would be determined after the completion of the roadshow.
IDBI Bank became a subsidiary of LIC with effect from January 21, 2019, after acquisition of additional 82,75,90,885 equity shares.
On December 19, 2020, IDBI Bank was reclassified as an associate company due to reduction of LIC shareholding to 49.24% following issuance of additional equity shares by the bank under a Qualified Institutional Placement (QIP).
“Strictly speaking, we are below the threshold of management control, but then again, what the government really means is to be given management control in a way that a private entity picks up and runs the bank, and in the process The government gets the price. Out of that,” Mr. Kumar said.
He further added that “Since LIC is also in the picture, my stand has always been very clear that we will do disinvestment along with the government, but it may be 49%. So, it will depend on whether this entire transaction will take place.” How that moves and what types of investors express interest”.
He further added that LIC does not want to hold a “large stake”, but in the form of some holdings, it has been a win-win for both the entities.
IDBI Bank has been the strongest contributor to the bancassurance channel, he said, adding that LIC may not need to hold the entire stake to connect the bancassurance regime to continue.
Bancassurance is an arrangement between a bank and an insurance company, which allows the latter to sell its products to the bank’s customers and others through a branch network.
He said that in the last three years the bank has achieved a lot in terms of savings accounts, cash management and premium collection.
“Once you have seen the result of fee-based income from this (arrangement), once the Board has recognized that this fee-based income is going to increase, the bank would also like to continue the relationship,” the chairman noted. Did.
LIC had bought a 51% stake in IDBI Bank in 2019 for Rs 21,624 crore at an average price of ₹61 per share. However, IDBI Bank shares are trading at a very low ₹45 per unit, indicating an investment loss for the insurer.
In addition, it invested ₹4,743 crore using policyholders’ funds in IDBI Bank on October 23, 2019, while the bank raised ₹1,435.1 crore on December 19, 2020, through QIP.
IDBI Bank has come out of the Prompt Corrective Action Framework in March 2021, subject to compliance with certain conditions and continuous monitoring.
Talking about the Initial Public Offering (IPO), Mr. Kumar said that the pricing of the public offering is very attractive and investors can look forward to the returns in the coming years as the company has growth potential.
One should look at Value for New Business (VNB) more than the embedded value and it should reach 12-13 in future, he added.
He added that VNB margin is what investors would be looking for and currently it is 9 for LIC.
VNB is the present value of expected future earnings from new policies written during a specified period. It refers to the added value to be generated through the writing of new policies during a specified period.