Mumbai: A day after the Union cabinet approved a Rs9,300 crore infusion in IDBI Bank, the lender plans to sell its stake in IDBI Federal Life Insurance Company and has mandated JP Morgan India to manage the process, according to a public announcement on Wednesday.
“JP Morgan India Private Ltd has been mandated for advising and managing a strategic review process for IDBI Federal Life Insurance Company Ltd which may result in, inter alia, potential divestment of all or part of the stake held by IDBI Bank in IDBI Federal Life Insurance Company," the announcement said, adding that JP Morgan invites expressions of interest by way of submission of comprehensive, non-binding proposal from potential investors for evaluating the potential transaction.
While IDBI Bank owns 48% of the insurance company, Federal Bank and Ageas Insurance International NV own 26% each. IDBI Bank’s exit from the insurance joint venture became essential after Life Insurance Corp of India (LIC) took a 51% stake in it in January and the bank started using its network to sell LIC products.
Through the sale of a non-core asset, the LIC-owned private lender is trying to raise additional capital. IDBI Bank is also looking to sell it mutual fund business. Mint reported on 30 May that the bank’s mutual fund business has assets under management (AUM) of more than ₹9,000 crore and since mutual fund businesses are generally valued at 4-5% of their assets under management, the sale could fetch around ₹360-450 crore.
IDBI Bank has been looking for an investor in the insurance company since 2017. In January 2019, the lender said its board has approved a proposal to resume the process of divesting its stake in the life insurance joint venture.
“We hereby advise that the board of directors of IDBI Bank at its meeting held on Monday, 21 January, 2019 has approved in-principle, the proposal to re-initiate divestment process of IDBI stake in IDBI Federal Life Insurance Co. Ltd subject to statutory/regulatory approvals, if any, required to be obtained in this regard," the bank had said in a regulatory filing.
IDBI Bank, the country’s weakest bank in terms of asset quality, had a gross bad loan ratio of 29.12% in the June quarter, followed by UCO Bank at 24.85% and Indian Overseas Bank at 22.53%, according to data from Capitaline.
Meanwhile, as part of the recapitalization plan approved by the Union cabinet on Tuesday, IDBI Bank will get ₹4,557 crore from the government, and state-owned LIC will pump in an additional ₹4,743 crore to improve the bank’s capital buffers. The government, the erstwhile owner of the bank, held a 46.46% stake in the lender as of June.
