LIC IPO: According to the draft prospectus of the country’s largest insurance company LIC, if it infuses additional capital in its associate company IDBI Bank, then it can have an impact on the financial health of LIC.
LIC IPO: The country’s largest insurance company LIC is soon going to bring the country’s biggest IPO and its draft has been filed with the market regulator SEBI. According to this draft prospectus, if additional capital is put in its associate company IDBI Bank, then it can have an impact on the financial health of LIC. LIC had invested Rs 4743 crore in IDBI Bank on 23 October 2018 using policyholders’ money and the bank raised Rs 1435.1 crore on 19 December 2020 through Qualified Institutional Placement (QIP). IDBI Bank is out of RBI’s Prompt Corrective Action (PCA) framework with effect from March 10, 2021.
LIC applied for IPO in SEBI, only OFS based issue, government to sell 31.60 crore shares
LIC may face problems due to RBI rules
According to the DRHP (Draft Red Herring Prospectus) filed by LIC with SEBI, based on the financial position and results of operations, IDBI Bank does not see any need to raise capital at this time. However, if the need arises within a period of five years from the date of receipt of the approval letter from RBI, i.e. before November 2023, LIC will have to infuse additional capital in IDBI Bank, which may have a negative impact on LIC’s financial health.
LIC had received an approval letter from the central bank RBI on November 2, 2018 to acquire additional equity shares in IDBI Bank, whether within five years from the date of approval, or from either IDBI Bank or LIC Housing Finance Ltd. One has to stop the housing finance activity within five years. Compliance with this requirement of RBI, LIC has feared adverse impact on financial health, results of operations and cash flow.
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IDBI Bank became part of LIC three years ago
About three years ago, on January 21, 2019, LIC had bought an additional 82,75,90,885 equity shares of IDBI Bank, after which LIC’s stake in the bank increased to 51 percent. After this deal, IDBI Bank became a subsidiary of LIC. However, after the issue of additional equity shares by IDBI Bank in a qualified institutional placement on 19 December 2020, the shareholding of LIC reduced to 49.24 per cent and IDBI Bank is now an associate company of LIC.
(Input: PTI)
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