Getting More Out Of PSUs
On July 16, public sector behemoth Life Insurance Corporation of India (LIC) decided to acquire 51 per cent stake in debt ridden government owned IDBI Bank. It's likely to be a preferential share purchase to recapitalise and strengthen the bank. The expansion of the equity base will see the current majority (85.96 per cent) stakeholder the Central government reduce its stake, a possibility hinted at by Arun Jaitley in his capacity as Union finance minister a year ago.
The Opposition parties and bank trade unions accuse the government of arm twisting LIC to bail out a troubled bank using insurance policy holders' money, but the government and the public sector entities involved are going ahead with their decision. The proposal has the backing of the Insurance Regulatory and Development Authority of India (IRDA) and has received in principle approval of the Reserve Bank of India (RBI). It will soon be vetted by the Securities and Exchange Board of India (SEBI) and the Reserve Bank of India (RBI). LIC, which already owns about 10 per cent stake in IDBI, will remain a financial investor and look to exit once IDBI valuations improve after the turnaround plan succeeds. If everything goes by the script, the government will also see the value of its residual 50 per cent stake improve substantially in the coming days.
The unfurling of the IDBI LIC deal is the latest display of the Narendra Modi government's public asset management and disinvestment strategy, something that has been influencing the operational, financial and managerial fortunes
