In a first, India begins to privatise a PSU bank

IDBI Bank was under the Reserve Bank of India’s Prompt Corrective Action (PCA) framework from May 2017 to March 2021.

Two months after the bank exited the framework, the cabinet committee on economic affairs gave in-principle approval for its strategic disinvestment and transfer of management control.

“We have been at it for quite some time," Tuhin Kanta Pandey, secretary in the department of investment and public asset management (Dipam), said. “It is also a first-of-its-kind transaction, where through a bidding route, we will be privatizing a bank. Now that the bank has come out of PCA, it is looking up; we have a potential that this could also be the first case of actually bringing in a private partner there. And the expression of interest, we are working at it, and it will be issued soon," Pandey said at an industry event on Wednesday.

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The government and the Life Insurance Corp. of India together hold 94% of IDBI Bank. The government holds a 45.48% stake, while LIC owns 49.24%. It is yet to be decided how much each entity will sell.

The government recently conducted road shows in the US and locally for the IDBI Bank stake sale and has sought clarity from the Reserve Bank on the deal size, guidelines or conditions on mergers, consortium composition and the glide path for the government to reduce its equity holding in the bank.

The IDBI Bank sale, if it concludes this financial year, will contribute to the FY23 divestment target of ₹65,000 crore. It has already raised ₹24,544 crore, most of it by listing the country’s biggest insurer LIC in May.

The central government is planning the privatization of several companies, including BEML, Shipping Corp, Concor, Vizag Steel, IDBI Bank, Nagarnar Steel Plant of NMDC and HLL Lifecare.

Pandey added that demerging land assets of companies like BEML will speed up their disinvestment.

“Some of the key ongoing transactions have this demerger already done or are in advanced stages, and following which we would be able to invite financial bids," Pandey said.

Besides BEML, the demerger of non-core assets of Shipping Corp. of India was also holding up the disinvestment process.

Pandey also asked the private sector to explore investment opportunities in companies being privatized, asserting that disinvestment should be looked at more from the angle of reforms rather than fiscal management. He noted that Indian companies should look at brownfield assets for acquisitions.

“So, therefore, the present context of economy, where we want to go for capital formation, growth and look at this decade as India’s decade, we now need to unshackle the investment opportunities. And one of the investment opportunities is from the brownfield," he said.

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