EoI for sale of IDBI Bank likely by September

Absence of meaningful investor interest resulted in the government ultimately having to sell its majority stake in IDBI Bank to LIC.

The department of investment and public asset management (DIPAM) in the finance ministry on Tuesday floated a Request For Proposal (RFP), inviting transaction and legal advisers for strategic disinvestment of IDBI Bank. Once these advisers are appointed, the department would promptly invite expressions of interest (EoIs) for purchase of the stakes on offer and this would likely be by September, a senior official told FE. According to the RFQ, the applications can be filed till July 13.

Once these advisers are appointed, the department will promptly invite expressions of interest (EoIs) for purchase of the stakes on offer and this would likely be by September, the official added.

As per the plan, the government will exit the bank by divesting its entire 45.48% stake worth about Rs 19,000 crore at the current market prices and promoter Life Insurance Corporation will offer to sell a portion of its 49.24% stake with an intent to relinquish management control.

After a failed attempt a few 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 special dispensation, the Insurance Regulatory and Development Authority has allowed LIC to hold 51%, against the norm of 15%. The insurer will, however, have to pare its stake to 15% in due course.

Absence of meaningful investor interest resulted in the government ultimately having to sell its majority stake in IDBI Bank to LIC. That was barely privatisation. “However, this could change in 2021 if both government and LIC are able to divest a majority stake in the bank to an external investor, as it may be indicative of broader investor appetite in state-owned banks with adequate loan-loss reserves,” Fitch Ratings said in a note on June 7.

After a gap of five years, IDBI Bank was back in the black with a net profit of Rs 1,359 crore for FY21. Following improvement in asset quality, the bank exited the prompt corrective action (PCA) framework on March 10. It can resume corporate lending which was stopped after it came under PCA.

The improvement in the health of the bank is also reflected in its share price. IDBI Bank share price has risen 46% to Rs 38.60 as on Tuesday on the BSE, compared with Rs 26.35 on January 27.

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 financial institutions and banks such as LIC (IPO) and IDBI Bank strategic sale.