Government and LIC plan to sell 51% stake in IDBI Bank

Even as the government chases a rather modest disinvestment target of Rs65,000 crore for the fiscal year FY23, there are plans afoot to sell its stake in IDBI Bank. It may be recollected that the government had planned to showcase IDBI Bank as a case study in privatization of PSU banks but that was not to happen due to the high NPAs of the bank. The total stake of the government in IDBI Banks is close to 94%, but this only held partially in their own account while a major chunk is held by India’s largest life insurer, LIC.

Officials in the government and LIC have indicated that they were in talks about how much of their stakes they plan to sell as well as the modalities. Ideally, the government may look to sell a total of 51% stake in IDBI Bank between LIC and the government so that the buyer gets management control of IDBI Bank. Most banks may not be interested in putting money unless there is change in control of the bank. Both, the government and LIC are expected to retain some stake in the lender after the sale; although the percentage is not yet clear. 

There are several steps yet to be completed. For instance, firstly a panel of ministers will have to make the final decision on the structure of the deal. In addition, the government and LIC will formally seek to gauge buyer interest and for that they may have to also appoint merchant bankers to give them a first-hand assessment. The success of such a complex issue will require institutional support and hence the buy-in of the domestic mutual funds and the FPIs will also be very critical in this entire venture.

Ahead of the stake sale, if the entire stake is to be sold to a single party, then additional approvals will be required. For instance, extant rules allow RBI to buy a stake up to 40% on a single window clearance basis. However, anything beyond that requires regulatory approval. Normally regulated entities will need permission to buy more than 40% while non-regulated entities will need approval if they have to even buy 10% to 15% stake. It looks like the RBI may offer a special concession to the 40% limit for the IDBI sale of shares to sail through.

The government is already on target to reach its disinvestment target for the year. For now, the government has raised over Rs21,000 crore from the LIC issue and it would raise another Rs36,000 crore from the sale of its residual stake in Hindustan Zinc. That should take it almost close to the divestment target for the month of August 2022. IDBI Bank has a market cap of Rs46,000 crore, so even if 51 % is sold, the government can raise over Rs23,000 crore and smoothly achieve its disinvestment target.