InvestorQ : Will Federal Bank taking an additional stake in IDBI Federal make an impact the stock?
Angel dcosta made post

Will Federal Bank taking an additional stake in IDBI Federal make an impact the stock?

Answer
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Anamika Sodhani answered.
3 months ago


Federal Bank will pay Rs.80 crore to buy an additional 4% stake in its life insurance joint venture IDBI Federal Life Insurance. Federal Bank will buy this stake from IDBI Bank and take their total stake in the insurance business to 30%. This is already the maximum permissible level for a lender under the regulations.

IDBI Bank plans to reduce its stake in IDBI Federal from 48% to 21% over a period of time. While Federal Bank will buy 4%, its Dutch partner, Ageas Insurance will buy another 23%. IDBI Bank will see its stake reducing from 25% to 21%. This values the insurance business overall at Rs.2000 crore.

This deal has been triggered by LIC buying a stake in IDBI Life which has led to IDBI being forced to dilute its stake in the insurance subsidiary. Federal Bank has a fairly strong franchise in the SME space where it does face NPA pressure. Despite a focus on conserving costs, Federal Bank sees value in this deal.