Govt tweaks norms to aid IDBI Bank’s privatization

The government earlier allowed foreign funds and investment vehicles incorporated outside India to own more than 51% of IDBI Bank.
The government earlier allowed foreign funds and investment vehicles incorporated outside India to own more than 51% of IDBI Bank.

Summary

The change means a successful bidder for IDBI Bank would not need to comply with Sebi's minimum public shareholding norms.

The government on Tuesday eased the minimum public shareholding rules for companies owned by the Centre and states, a move expected to increase interest in the ongoing divestment of IDBI Bank Ltd.

Under the amended Securities Contracts Rules, which take effect immediately, such companies will not need to ensure that their non-promoter shareholding is at least 25% over a period of time, as required for other listed companies. “The central government may, in public interest, exempt any listed entity in which the central government or state government or public sector company, either individually or in any combination with others, hold directly or indirectly, majority of the shares or voting rights or control of such listed entity, from any or all of the provisions of this rule," the finance ministry said in a notification. The exemption will remain valid for a specific period irrespective of any change in control of the entity, it said.

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The change means a successful bidder for IDBI Bank would not need to comply with the minimum public shareholding norms issued by the Securities Exchange Board of India (Sebi) that mandates listed entities to ensure that public shareholding in their companies increases to 25% over time. The last date for submitting expressions of interest for IDBI Bank is 7 January.

The government and Life Insurance Corp. of India aim to sell more than 60% stake of their holding in the bank to a private entity and hand over management control of the bank to the winning bidder after the disinvestment process concludes.

Giving an exemption of two or three years will provide clarity to potential bidders of IDBI Bank since the exemption will stay in place even if the ownership of the bank changes, an official aware of the matter said.

The government is expecting several bids for the bank. Mint had previously reported that global private equity giants, including US-based Carlyle Group, Canadian billionaire investor Prem Watsa-controlled Fairfax Financial Holdings and global banks such as Singapore-based DBS Bank, may bid for the stake sale.

According to a reports in The Economic Times, Sumitomo Mitsui Financial Group and another global bank were among five potential investors that have sought information from the Centre about the stake sale.

The government earlier allowed foreign funds and investment vehicles incorporated outside India to own more than 51% of IDBI Bank. It has also said that it may consider relaxing the five-year lock-in period for shares if a non-banking financial company or NBFC is merged into IDBI Bank.

Further, norms that apply to public sector banks will not apply to IDBI Bank after the government and LIC sell their stakes, even though they together will continue to hold about 33% in the bank.

The government has also said that IDBI Bank will operate as a private sector bank even if it were to be taken over by a foreign bank.

The government has also clarified that it has applied for reclassification of its shareholding as a public shareholder in response to queries on whether the Centre and LIC will hold any board seats or participate in the management and governance of IDBI Bank after the sale.

The government will also exempt the potential buyer of IDBI Bank from tax liability on notional gains if the market value of shares sold by LIC is higher than the price discovered through a competitive bidding process.

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