Centre invites EoIs for IDBI Bank; on offer: 60.72% + management control

The government on Friday launched IDBI Bank‘s privatisation process, offering private and foreign banks among others a majority 60.72% stake in the lender along with management control. Eligible entities can bid for stakes held by the government and Life Insurance Corp. of India (LIC) individually or in a consortium. The last date for submission of expressions of interest (EoIs) is December 16.

Large corporate houses and individuals will not be eligible to bid on their own or as a consortium in keeping with Reserve Bank of India (RBI) bank ownership rules. IDBI closed at ₹42.70 on the BSE Friday, up 0.8%, for a market value of ₹46,000 crore. At the current market price, the 60.72% stake on offer is valued at over ₹27,800 crore.

LIC currently has management control of the bank with a 49.24% stake. The government holds 45.48%, while the remaining 5.28% is with the public. The government will offload 30.48% and LIC 30.24%, adding up to 60.72%.

While IDBI has been designated a private sector bank by the RBI, this will mark the first time that a lender majority owned by the government and state-run entities is being divested.

The bank reported ₹756 crore profit in the June quarter, up 25.4% from a year earlier. The lender had 1.25% net non-performing assets at the end of June 2022, down from 1.67% of net advances a year earlier.

The cabinet had in May last year given in-principle approval for IDBI Bank’s strategic disinvestment, along with transfer of management control.

Divestment Target

The government has an FY23 disinvestment target of Rs 65,000 crore, of which it has raised Rs 24,544 crore so far.

Listed private banks, foreign banks, non-banking financial companies, and alternate investment funds having a minimum net worth of Rs 22,500 crore are eligible to bid.

They should also have reported profits for at least three years out of the last five. A maximum of four entities can bid jointly and the lead member must hold at least a 40% stake in the consortium. The acquirer will have to lower its stake in the bank to 26% in 15 years. In the first five years, 40% of the equity capital will be locked in as per central bank guidelines.

“The government probably wants to cash in on the upside, if the bank continues its profitability stretch and that is why it wants to retain a 15% stake,” said an executive with a consulting firm. “This (residual government stake) could be a dampener for some interested parties.”

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