The government-owned insurance behemoth had sought the banking regulator’s nod before it had approached the Insurance Regulatory and Development Authority (IRDAI) for seeking regulatory approvals, a senior government official said.

After the Union Cabinet approves the proposal, the RBI will examine if LIC meets the “fit and proper criteria” for being a promoter with a controlling stake in IDBI Bank.

The Cabinet nod is required because the government’s stake will be diluted below 51 per cent in IDBI Bank. The government owned 85.96 per cent and LIC 7.98 per cent in IDBI Bank at the end of June.

Sources said LIC might have to pare down its stake in other banks below 10 per cent, in a bid to meet regulatory norms, before seeking further nods from the RBI. “LIC will not seek any exemptions from the RBI. It will bring down its stake below 10 per cent in other banks,” a source said.

LIC has more than 10 per cent in Axis Bank (13.1 per cent), Corporation Bank (13 per cent), Punjab National Bank (12.2 per cent), State Bank of India (10.1 per cent) and Syndicate Bank (10.2 per cent) as of June 30 this year, according to the data compiled by Business Standard Research Bureau.

LIC also has promoter status in the case of Axis Bank.

“LIC bringing down its stake below 10 per cent will not have a significant impact on our bank. Other investors will buy those shares,” a senior executive of one of these banks said.

While giving its nod, IRDAI had given LIC an exemption to holding more than 15 per cent in an entity. IRDAI’s rules prevent any insurer from owning beyond 15 per cent in a listed financial firm.

The insurance regulator has, however, asked LIC to bring down its stake in IDBI Bank over a period of five-seven years, according to sources.

IDBI Bank will likely become a subsidiary of LIC on the lines of LIC Housing Finance, LIC Mutual Fund and LIC Pension Fund.

LIC is expected to pump Rs 100-130 billion into IDBI Bank through a preferential allotment of new equity shares at a price determined by a formula under Sebi’s rules.

The deal will likely trigger an open offer, which LIC will make to IDBI Bank’s shareholders.

According to Sebi guidelines, an acquisition of more than 25 per cent in a listed entity is termed control and requires an open offer. The acquiring company must make an offer to existing shareholders to buy an additional stake in the company.