The government is likely to invite preliminary bids next month to sell its stake in state-owned IDBI Bank and the talks with the Reserve Bank of India (RBI) are in final stages, according to a PTI report. The government might reportedly sell at least 51 per cent of IDBI Bank. The government and state-owned LIC together own nearly 94 per cent stake in the bank.
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“There are still some pending issues that need to be discussed with the Reserve Bank of India and Securities and Exchange Board of India. We are hopeful of issuing the EoI by September,” acccording to the PTI report quoting an official.
It is not clear on what regulatory issues the government is holding discussions with banking and equity market regulators RBI and Sebi, respectively. “Since IDBI Bank would be first of its kind with regard to privatisation in the banking sector, we are expecting a lot of investor queries to come in once the Expression of Interest (EoI) is floated. The stake sale is unlikely to conclude this fiscal,” the official told PTI.
The Cabinet Committee on Economic Affairs had given in-principle approval for strategic disinvestment and transfer of management control in IDBI Bank in May 2021.
“Strategic sale is uncharted territory. There are a lot of issues to be addressed, including an open offer to be made to the new buyer, mode of consortium formation and others,” the official said, according to the report.
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According to a recent Bloomberg report, LIC and the government will take buyers’ interest by the end of September. A group of ministers will make the final decision on the structure of the deal. Shares of IDBI Bank have jumped 6.3 per cent in the past 12 months, raising its market valuation to about Rs 42,470 crore ($5.3 billion).
Authorities also plan to sell some stakes of the government and LIC in IDBI Bank and cut management control. The RBI will allow investors to buy a stake larger than 40 per cent, as entities seek permission from the central bank to purchase stakes above that threshold, while non-regulated firms are capped at purchases of 10-15 per cent.
In its IPO filings in March this year, LIC had said that it will retain part of its 51 per cent stake in IDBI Bank to reap the benefits of the bancassurance channel. The plan is to completely privatise the bank as the government wants to exit it. IDBI Bank became a subsidiary of LIC with effect from January 2019, following the acquisition of an additional 82,75,90,885 equity shares.
On December 19, 2020, IDBI Bank was reclassified as an associate company due to the reduction of LIC shareholding to 49.24 per cent following the issuance of additional equity shares by the bank under a qualified institutional placement. LIC had bought a 51 per cent in IDBI Bank in 2019 for Rs 21,624 crore at an average price of Rs 61 per share.
