Are IDBI Bank's potential suitors good enough? RBI is checking

Prem Watsa-backed CSB Bank, Kotak Mahindra Bank and Emirates NBD are among those who have submitted initial bids for the government's majority stake in IDBI Bank. (REUTERS)
Prem Watsa-backed CSB Bank, Kotak Mahindra Bank and Emirates NBD are among those who have submitted initial bids for the government's majority stake in IDBI Bank. (REUTERS)

Summary

  • RBI is expected to inform the government about its findings soon, which could be sometime during this month

NEW DELHI : The long-delayed privatization of IDBI Bank may be about to speed up, with the central bank examining the suitability of potential bidders.

Prem Watsa-backed CSB Bank, Kotak Mahindra Bank and Emirates NBD are among those who have submitted initial bids for the government's majority stake in IDBI Bank, media reports have said. According to two people aware of the matter, the Reserve Bank of India (RBI) is currently studying whether the potential bidders adhere to its 'fit and proper criteria' for running a financial services entity.

"The RBI is expected to inform the government about its findings soon, which could be sometime during the ongoing month (April)," one of the two people said on condition of anonymity.

"The processes required to take the strategic divestment forward, post the regulator's certification, will likely be taken up by the new government after the announcement of the results of the general elections (on 4 June)," the person added.

Spokespersons of the finance ministry and RBI didn't respond to emailed queries.

The government and Life Insurance Corp. of India (LIC) together hold 94.72% stake in IDBI Bank. While LIC holds 49.24%, the Centre holds 45.48%. The Centre, which sought expressions of interest from prospective bidders in October 2022, is expected to sell about a 60.7% stake in the bank.

After the RBI vetting is done, prospective bidders will be given access to the data room, which will be followed by a due diligence and invitation for financial bids, among other processes. In February, Tuhin Kanta Pandey, secretary in the Department of Investment and Public Asset Management (Dipam), told Mint that he expected the IDBI Bank divestment to pick up in the second half of FY25.

The privatization of IDBI Bank will also be a test case in which the government is reducing its stake in a bank or financial institution below 50%, experts said.

"This is a first test case; so it's only natural that the process will take a long time. The government will have its own contours," said Madan Sabnavis, chief economist at Bank of Baroda.

"The demand will depend on the assessment done by the RBI, whether it's a single party buying the stake or key investors, one doesn't really know the particular modality for the stake sale model yet. I would say, take your time, and make it a template for the future," Sabnavis added.

Bidders of IDBI Bank should have a minimum net worth of 22,500 crore, and must have reported net profit in three out of the last five years to qualify. A maximum of four members would be permitted in a bidding consortium, and the successful bidder would be required to lock in at least 40% of the equity capital for five years.

The government has set a divestment target of 50,000 crore for FY25, about 67% higher than its revised target of 30,000 crore for FY24.

Interestingly, Dipam secretary Pandey had told Mint after the announcement of the vote-on-account budget that the government will no longer include disinvestment and asset sales targets in the Union budget in future, and instead, it will look at disinvestment and dividend holistically since dividends from public sector stocks add to the overall receipts.

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