Life Insurance Corporation (LIC) is looking at unlocking value in IDBI Bank in its run-up to the IPO (initial public offering), which is likely to happen in FY 2020-21, said chairman M R Kumar on Friday.
At the Union Budget presentation, Finance Minister Nirmala Sitharaman had announced that the government would be looking at selling a part of its stake in LIC through IPO.
Finance Secretary Rajiv Kumar later said that the government could divest up to 10 percent in LIC, which has an enterprise value of Rs 36 lakh crore. The government aims to garner Rs 90,000 crore from the listing of LIC and stake dilution in IDBI Bank in the upcoming year out of its total annual disinvestment target of Rs 2.10 lakh crore.
In January 2019, LIC picked up 51 percent stake in IDBI Bank, making it the majority shareholder of the lender.
The IRDAI regulations do not allow an insurance company to hold more than 15 percent in any listed entity. However, the regulator made an exemption to LIC in regard to its holding in IDBI Bank.
LIC chairman Kumar said though the IRDAI has not fixed any timeline for LIC to reduce its stake in IDBI Bank, the Reserve Bank of India has given a 12-year time frame.
"We would not want to wait that long, especially when we are also going to be listed, but we have to find some ways to unlock value in IDBI Bank," Kumar told reporters here on Friday.
"Once they come out of the PCA and start lending again, I believe that their profitability will go up substantially and also attract investors," he added.
IDBI Bank is under PCA framework since May 2017.
Currently, the government holds 47.11 percent stake in IDBI Bank, while 51 percent is with LIC, leaving very little for investors of the paid-up equity.
When asked about the IPO's timing, Kumar refused to give any timeline. "Yes, the finance secretary was on record saying listing will happen in the H2 of FY21. We have to work it out. I don't know how long it takes for the very simple reason that we are doing for the first time," he said.
He further said that the listing would need some legislative changes in the LIC Act.