The government has appointed KPMG India as the transaction adviser for strategic disinvestment of its 45.48% stake in IDBI Bank. It would seek expression of interest (EoI) from possible purchasers in October, in line with the program to full the transaction in the present economic year, official sources stated.
As per the program, the government will exit the bank by divesting its whole stake worth about Rs 18,500 crore at the present industry costs and promoter Life Insurance Corporation will supply to sell a portion of its 49.24% stake with an intent to relinquish management handle.
Discussion will quickly get started with the Reserve Bank of India on the structuring of the transaction in terms of glide path (of the new promoter’s holding), voting rights, and so forth,” a senior official told FE.
Even even though RBI will let the new promoter of IDBI Bank to hold more than 51%, the promoter has to in the end bring down its holding to the regulatory limit of 15% (a RBI panel had recommended last year to raise it from 15% to 26% for promoters and from 10% to 15% for non-promoters) in a prescribed time period. Also, the stipulation in the Banking Regulation Act, 1949 is that no shareholder of a banking organization – PSB or private sector bank – can workout voting rights more than 26%.
After a failed try a couple of years ago, the government diluted its stake in IDBI Bank in January 2019 in favour of LIC, which then became the promoter in the bank with 51% stake. Under a particular dispensation, the Insurance Regulatory and Development Authority has permitted LIC to hold 51%, against the norm of 15%. The insurer will, even so, have to pare its stake to 15% in due course.
Success in IDBI Bank sale may well be indicative of broader investor appetite in state-owned banks with sufficient loan-loss reserves.
After a gap of 5 years, IDBI Bank beginning generating earnings in FY21 — it reported a net profit of Rs 1,359 crore in the years. Following improvement in asset high-quality, the bank exited the prompt corrective action (PCA) framework on March 10. It can resume corporate lending which was stopped just after it came below PCA.
The bank reported more than 300% jump in its net profit to Rs 603 crore for the June 2021 quarter, aided by greater development in net interest revenue (NII) and improvement in asset high-quality.
Of the Rs 1.75-lakh-crore disinvestment target for FY22, the government has budgeted Rs 1 lakh crore from disinvestment of government stake in public sector economic institutions and banks such as LIC IPO and IDBI Bank strategic sale.