IDBI Bank agrees to sell insurance arm stake; signs SPA

IDBI Bank, the state owned lender will receive up to Rs 595.30 crore from the sale of up to 27% stake in its joint venture arm, IDBI Federal Life Insurance Company (IFLI), valuing the insurance arm at Rs 2,205 crore.
The lender has entered into a Share Purchase Agreement (SPA) with Ageas Insurance International NV and Federal Bank on August 5, whereby it has agreed to sell up to 27% stake in IFLI.
The transaction is expected to be completed by the end of Q3 (October-December) FY 2021, subject to regulatory approvals and satisfaction of the terms and conditions set out in the SPA.
Ageas Insurance and Federal Bank are IDBI Bank’s existing JV partners in IFLI.

As per the said agreement, while 23% stake would be sold to Ageas, Federal Bank would acquire up to 4% stake in IFLI from IDBI Bank.
The transaction would be concluded subject to regulatory approvals.
For 23% stake sale to Ageas, the bank will receive Rs 507.10 crore. For up to 4% stake sale to Federal Bank, IDBI Bank will receive up to Rs 88.19 crore.
Ageas will increase its stake in IFLI to 49% while that of Federal Bank’s will go up to 30%. Post-stake sale, IDBI Bank will hold 21% stake in IFLI.

IDBI Bank is required to reduce stake in insurance arm following the Life Insurance Corporation of India (LIC) acquiring 51% controlling stake in the lender during the financial year 2018-19.
The process of acquisition was completed on January 21, 2019, with LIC being re-classified as promoter of the Bank (with management control) and Government of India continuing to be the co-promoter of the Bank (without management control).

As per insurance regulations, an insurer cannot own more than 10% stake in another insurer. Since LIC owns 51% stake in IDBI Bank and the latter owns 48% stake in IDBI Federal Life Insurance Company, the lender has to divest its stake in its insurance joint venture.
Since IDBI Bank will continue to hold more than 10% stake even after the current round of divestment in IFLI, the lender and its promoter LIC may have to seek dispensation from the insurance regulator in this regard

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