State-run Life Insurance Corporation (LIC), which is heading for an initial public offering (IPO), is likely to retain a part of its stake in IDBI Bank as it sees strategic value in using the bank’s large network of branches to market its insurance services.

“I would like to have some stake in IDBI Bank. The strategic reason for picking up stake in the bank has not gone away at all. In fact, it has been the strongest contributor to the bancassurance channel for us. This will help us grow that part of the channel,” LIC chairman M R Kumar said in a press conference on Monday.

India's biggest insurance company had picked up 51% stake in IDBI Bank in 2019 as the lender, saddled with bad loans, needed fresh capital infusion. In 2020, LIC reduced its shareholding to 49.24%. The government, which together with LIC holds 94.71% stake in IDBI Bank, is looking to divest its stake in the bank. 

LIC will have to take a call on whether it would go for the option of making IDBI Bank an agent for sourcing loans for LIC Housing Finance. The insurance company has time till November 2023 to comply with RBI rules that allow mortgage lending to only one entity in a financial group. LIC is the parent company of both IDBI Bank and LIC Housing Finance.

Commenting on the LIC Housing and IDBI Bank issue, Kumar said the Reserve Bank of India has “given time to us till November 2023. If the IDBI Bank disinvestment happens before that, then the problem would not arise.”

LIC has filed its draft red herring prospectus (DRHP) with market regulator Securities and Exchange Board of India (Sebi). It is looking to divest 5% stake to raise about $8 billion next month, making it India’s largest IPO.