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Life Insurance Corporation (LIC), a state-owned insurance group and investment company, received a clearance from Prime Minister Narendra Modi on 1st August 2018, for the acquisition of 51% stake in debt-ridden IDBI Bank, a government-owned bank. The sanction of the deal means that LIC will boost its stake in the bank from the current 8% to 51%, which will make it the majority stakeholder. According to the deal, IDBI bank will issue preferential shares to LIC for raising the money.
The deal between LIC and IDBI bank will help the bank to acquire the capital support of Rs.10,000 crore–Rs.13,000 crore. This deal will be a win-win situation for all – the government, LIC and IDBI bank.
The government (with 86% stake in IDBI) wanted to privatize IDBI by giving up the control over the bank. But the plan, however, did not succeed, because of the bank’s depreciating financial condition.
Since August 2015, the government has been taking several steps to make Indian banks stronger. Before 2015, the asset quality review showed that the Non – Performing Asset (NPA) figures were high. Due to this, the government infused capital in various banks. One of these NPA - hit bank, was IDBI which had been infused with Rs.16, 000 crores. To make the bank even better, government-connected LIC to IDBI, which could spread its approach in all corners of the country.