LIC, the state-owned insurance giant, has announced that it will keep a portion of its ownership in IDBI Bank to profit from the bancassurance channel. Life Insurance Corporation (LIC) will divest its interest in IDBI Bank with the government, but may not totally exit, according to LIC Chairman M.R. Kumar in an interview with PTI.
Life Insurance Corporation is now doing roadshows for its first public offering, which will be on sale on May 4th.
As part of its privatization effort, the government has been preparing to sell its 45 percent minority holding in IDBI Bank to strategic investors for several years.
Tuhin Kanta Pandey, Secretary of the Department of Investment and Public Asset Management (DIPAM), stated last week that the IDBI Bank privatisation process was beginning and that the size of the stake sale will be determined when the roadshow was completed.
Following the acquisition of an additional 82,75,90,885 equity shares, IDBI Bank became a subsidiary of LIC on January 21, 2019.
Due to the reduction of LIC shareholding to 49.24 percent following the issue of additional equity shares by the bank under a Qualified Institutional Placement, IDBI Bank was categorized as an associate company on December 19, 2020. (QIP).
“Strictly speaking, we are below the management control threshold limit,” Mr. Kumar explained, “but what government truly means is that management control has to be handed in such a way that a private organization picks up and operates the bank, and the government gets value out of it.”
He further stated that “Since LIC is involved, my position has always been clear: we will divest alongside the government, but only to a lesser extent. As a result, it will be determined by the outcome of the transaction and the types of investors who indicate an interest “..
He went on to say that while LIC does not want to “keep a large interest,” it does want to hold some because it has been a win-win situation for both parties. IDBI Bank has been the biggest donor to the bancassurance channel, he said, adding that LIC may not need to hold the entire stake to keep the arrangement going. Bancassurance is a partnership between a bank and an insurance firm that allows the latter to market its products through the bank’s branch network to the bank’s clients and others.
According to him, the bank has made significant progress in terms of savings accounts, cash management, and premium collection during the last three years.
“Once you see the consequence of fee-based income coming out of this (agreement), once the board recognizes that this fee-based income is likely to expand, the bank would like to have continuity in the connection,” the chairman said.
In 2019, LIC paid Rs 21,624 crore for a 51 percent stake in IDBI Bank at an average price of Rs 61 per share. The IDBI Bank scrip, on the other hand, is selling substantially lower at 45 per unit, indicating that the insurer has lost money on its investment.
It also invested Rs 4,743 crore in IDBI Bank on October 23, 2019, utilising policyholder funds, and the bank raised Rs 1,435.1 crore through a QIP on December 19, 2020.
In March 2021, IDBI Bank was released from the urgent corrective action framework, subject to specific requirements and ongoing monitoring.
Mr. Kumar added that the pricing of the initial public offering (IPO) is highly attractive and that investors may expect to see returns in the years ahead because the company has growth potential. More than the embedded value, he stated, one should consider the value for new business (VNB), which should reach 12-13 in the future. Investors will be looking at the VNB margin, which is now 9 for LIC, he noted.
The present value of predicted future revenues from new policies written during a given period is known as VNB. It reflects the predicted added value generated by the authoring of new regulations over a given time period.