Insurance regulator Irdai has already given its approval to LIC for the stake purchase, a move which will help the debt-ridden bank get a capital support of Rs 100- Rs130 billion.
"The LIC-IDBI Bank deal will trigger an open offer to protect the interest of minority shareholders in the bank," sources said.
As per SEBI takeover code rules, an acquirer has to give an open offer to the shareholders of target company on acquiring shares or voting rights of 25 per cent or more.
According to sources, the board of Insurance Regulatory and Development Authority of India (Irdai), at its meeting held in Hyderabad last month, had permitted Life Insurance Corporation (LIC) to increase its stake from 10.82 per cent to 51 per cent in IDBI Bank.
As per current regulations, an insurance company cannot own more than 15 per cent in any listed financial firms.
LIC has been looking to enter the banking space by acquiring a majority stake in IDBI Bank as the deal is expected to provide business synergies despite the lender's stressed balance sheet.
For LIC it will get about 2,000 branches through which it can sell its products while the bank would get massive funds of LIC.
The bank would also get accounts of about 220 million policy holders and subsequent flow of fund.
If the deal goes through IDBI Bank, which is grappling with mounting toxic loans with gross non-performing assets rising to a staggering Rs 556 billion at the end of latest March quarter, will get much needed capital support to revive its fortune. During the period, the lender's net loss stood at Rs 56.63 billion.
The government would not get the proceeds from the stake reduction as the money would be utilised for the bank's revival. It could happen through issuance of fresh equity so that the government's stake which is presently at 80.96 per cent would come down below 50 per cent as announced in the Budget.