Court observation comes on a plea by IDBI officers that LIC proposal will result in IDBI losing status as public sector bank.
New Delhi: The Life Insurance Corporation’s (LIC) plan to pick up a majority stake in the ailing state-run IDBI Bank has hit a roadblock. The Delhi High Court Tuesday observed that the insurance behemoth must act in the interest of its stakeholders and ruled that no decision can be taken based on any other consideration.
As such, LIC will not be able to move ahead with its proposal until the next hearing, which is slated for 30 August.
The court was hearing a petition filed by the IDBI Officers’ Association, which has argued that the LIC acquisition would result in the loss of IDBI’s status as a public sector bank and a government company, “which is in violation of the parliamentary assurances”.
Appearing for the association, advocates Prashant Bhushan and Pranav Sachdeva submitted that LIC would be investing Rs 13,000 crore of public money for the acquisition.
“The said acquisition is not in public interest since it exposes the investments made by the public in IDBI, corrodes the ability of LIC to pay back its policy holders since it will have to invest an amount of Rs 13,000 crore to acquire a 51 per cent stake, and allows the government to shift its responsibility of development onto LIC and paves the path for the future privatisation of IDBI Bank Ltd,” the petition by the officers’ association reads.
In July, the Insurance Regulatory and Development Authority of India (IRDAI) gave its approval to LIC for acquiring a 51 per cent stake in the debt-ridden bank.
IDBI officers up in arms against the move
The IDBI Officers’ Association had earlier registered its protest against the proposal and even sought capital infusion from the government for the ailing bank. The finance ministry, last year, announced a Rs Rs 2.11 lakh crore recapitalisation plan to boost the financial health of the state-run lenders.
The association also noted that the IRDAI approval was in clear violation of the Insurance Act, which does not allow any insurance company to acquire more than 15 per cent stake in another company. The insurer is awaiting approvals from other regulators including the Reserve Bank of India and the Securities and Exchange Board of India (SEBI).
“It (LIC) cannot be allowed to hold 51 per cent because this would reduce the government’s share to less than 51 per cent, which would go against the Articles of Association of the Bank and also the solemn assurance to Parliament made in 2003 during the then NDA regime under the Prime Ministership of A.B. Vajpayee,” the All India Bank Employees’ Association had earlier written.
Finance Minister Arun Jaitley has been pushing for privatisation of IDBI Bank since 2015.