“They (LIC) are exploring an open offer. It will either be exemption, otherwise an open offer,” Subhash Chandra Garg, secretary, Department of Economic Affairs, who is also a member on the LIC board, told reporters.

A meeting of the LIC board was held in the national capital on Tuesday to “take necessary decisions” supporting their plan to acquire a 51 per cent stake in the bank. Garg said Sebi would take a call on the open offer. “Either exemption or not, that is for Sebi to decide…The board once again approved acquisition of up to 51 per cent (in IDBI Bank). This has been done earlier and has been reiterated today,” he said after the meeting.

According to the Sebi’s takeover code, an acquisition of more than 25 per cent in a listed entity is termed as control and requires an open offer. Under this arrangement, the acquiring company must make an offer to existing shareholders to buy an additional stake in the company. It is aimed at providing the shareholders an exit option, as there may be a management change after acquisition and investors may perceive potential risks in the business.

According to sources, the board has decided on appointment of a merchant banker and a legal advisor to carry out the acquisition process. The board asked the insurer to do due diligence of the bank and then proceed for various regulatory clearances. LIC is also in the process of picking up an additional 7 per cent stake in IDBI Bank through preference shares. With this, its total holding in the bank would rise to 14.9 per cent. At present, LIC holds a 7.98 per cent stake in the public sector bank.

The Insurance Regulatory and Development Authority board, at its meeting held in June, had permitted LIC to increase its stake to 51 per cent in IDBI Bank. According to the regulations, an insurance company cannot own more than 15 per cent in any listed financial firm. In August, the Union Cabinet had approved diluting its stake below 51 per cent in the ailing bank. The deal would cost LIC around Rs 110 billion (for additional 43 per cent) to get a majority stake.

Acting finance minister Piyush Goyal had last month termed the LIC’s acquisition of a majority stake in IDBI Bank as a “win-win” situation for both the government-owned entities. Goyal had also said the deal would make IDBI Bank strong, improve its capital adequacy, and bring it out of the prompt corrective action (PCA) framework. The bank, in which the government holds a 85.96 per cent stake, had posted a net loss of Rs 24 billion in the quarter ended June 2018. The gross non-performing asset (NPA) stood at Rs 57.8 billion at the end of June.