A senior official told FE that the Centre will issue an expression of interest (EoI) for the strategic disinvestment of IDBI Bank next month, with the transaction expected to be completed by March 2023. The decision was made in response to regulatory flexibility provided by the Reserve Bank of India (RBI) and the Securities and Exchange Board of India (Sebi) regarding the glide path to reduce promoter stake in the bank following the transaction.
Although the exact size of the stake dilution has not been determined, the source indicated that the government and promoter Life Insurance Corporation may offer to offload up to 60% of the bank. Given the current market conditions, the government and LIC believe that selling a 74 percent stake, which corresponds to the maximum FDI allowed in private banks, may be impossible. Furthermore, if a buyer begins with such a large equity stake in the bank, it will find it difficult to reduce the holding to 26 percent over time in accordance with the RBI’s glide path.
After five years of losses, IDBI Bank posted a net profit of ‘1,359 crore in FY21, rising to ‘2,439 crore in FY22.
At current market prices, LIC (49.24 percent) and the government (45.48 percent) own 94.78 percent of IDBI Bank, worth approximately ‘37,848 crore. On the BSE on Monday, the bank’s share price closed at ‘35.2, down 3.96 percent from the previous close.
“We would like to complete this transaction during the current fiscal year, but bidders sometimes request more time.” In addition, bidders must have security clearance,” the official said, adding that banks, non-banking financial companies, and private equities have expressed interest in the IDBI Bank stake in informal interactions with the government.
To make the deal more appealing, the government urged the RBI to give the potential buyer some leeway in meeting regulatory requirements for private banks, such as a time-bound reduction in promoter holding. It also wants a longer time frame for the IDBI Bank to meet the market regulator’s minimum public float of 25% for listed companies.
“A joint meeting with the RBI and Sebi was held to find solutions to regulatory overlap issues.” We are working to resolve these issues. “In this case, the glide path to reduce promoter stake could be 10-15 years,” the official said.
According to RBI norms last revised in November 2021, the promoter of a private sector bank must retain at least 40% of the bank’s paid-up voting equity share capital for the first five years of operations. The RBI may also request that the promoter reduce his or her holding to the lock-in level over the next five years or earlier.
Similarly, a strategic investor in IDBI Bank may not want to sell its stake in three years, as required by the Sebi, during which time the bank will most likely be establishing a new management team, restructuring operations, and attempting a rebranding.
IDBI Bank has not had to comply with the Sebi norm because it is essentially a government-run bank, but once it becomes a private bank, such leeway will not be available automatically. Currently, the public holds slightly more than 5% of the bank.