In a major relief for debt-ridden IDBI Bank, Insurance Regulatory and Development Authority (IRDA) on Friday cleared Life Insurance Corporation's (LIC) investment proposal in state-run bank, sources privy to the developments told CNBC-TV18.

The decision, was taken at a the meeting of the Board of Directors of IRDA at Hyderabad.

Sources told that insurance behemoth, LIC, can invest up to 51% in IDBI Bank, after all regulatory approvals. LIC currently holds 10.8 percent in the bank.

If the deal goes through, IDBI Bank will get capital support of Rs 10,000-Rs 13,000 crore from the LIC.

However, the regulator has permitted the LIC to pick up to 51 percent stake in IDBI Bank, thereby relaxing existing rules for investment. As per norms, an insurance company cannot hold more than 15 per cent stake in a company.

LIC's plan to buy out a majority government stake of about 51 percent in IDBI Bank, was first reported by CNBC-TV18 on June 23.

Meanwhile, VG Kannan, chief executive, Indian Banks Association, said he was surprised that IRDA has given its approval to LIC-IDBI Bank deal as he was doubtful over LIC's capability to run a bank.

Kannan also said this deal may set the precedence for other public sector undertaking (PSU) insurance companies to buy PSU banks.

AK Purwar, former SBI chairman, said LIC's board positions on other banks will be an issue and the state-run insurance company should gradually reduce their positions in other banks.

R Gopalan, former banking Secretary, said the LIC-IDBI Bank deal will be a great strain on the regulators and Securities and Exchange Board of India (Sebi).

I expect IDBI Bank will continue to work as a subsidiary of LIC like LIC Housing Finance, said JN Gupta, former Sebi executive director.

Prabal Basu Roy, management advisor, said that he don’t know if LIC has the wherewithal to run a bank of this stature and turn it around.

Roy told CNBC-TV18 that insurer need innovative thinking to effect a turnaround at IDBI bank and have doubt about LIC doing that.

MR Umarji, former chief legal adviser, Indian Banks' Association, said the deal will become easier for LIC to manage IDBI Bank directly without having to consult government at every step.

A listed entity, IDBI Bank is grappling with mounting toxic loans with gross non-performing assets rising to a staggering Rs 55,600 crore at the end of latest March quarter. During the three months, the lender's net loss stood at Rs 5,663 crore.

The bank has a market capitalisation of nearly Rs 23,000 crore, while its real estate assets as well as its investment portfolio are estimated to be worth over Rs 20,000 crore.

IDBI Bank's real estate assets are worth about Rs 7,000 crore, while its non-core assets, which include investments in NSE, NSDL, IDBI Federal Life, IDBI Mutual Fund and IDBI Capital Markets, are also valued around Rs 7,000 crore.

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First Published:Jun 29, 2018 6:15 PM IST