The government expects to complete the strategic sale of IDBI Bank in the next financial year, according to a senior official. The process of privatisation of IDBI Bank is on and once the regulator clearance is obtained, financial bids will be invited. Here are some more details about the deal.
Introduction
IDBI Bank is a public sector bank that was established in 1964 as a development finance institution. The bank provides a range of banking and financial services to various segments of customers, including retail, corporate, MSME, agriculture and infrastructure. The bank has a network of 1,892 branches and 3,683 ATMs across India as of March 2023. The bank has a total business of Rs 6.08 lakh crore and a net worth of Rs 9,745 crore as of September 2023. The bank has been under the prompt corrective action (PCA) framework of the RBI since May 2017 due to its high non-performing assets (NPAs) and low capital adequacy ratio (CAR).
Strategic Sale Process
The government along with LIC is selling nearly 61 per cent stake in IDBI Bank and had in October 2022, invited bids from buyers. In January 2023, DIPAM said it had received multiple Expressions of Interest (EoI) for buying a stake in IDBI Bank. The bidders who have shown interest through EoI have to get two sets of clearances — one from the home ministry for security clearance and the other from the Reserve Bank of India (RBI) for meeting the ‘fit and proper’ criteria.
In an interview to PTI TV, the Department of Investment and Public Asset Management (DIPAM) Secretary Tuhin Kanta Pandey said the process of privatisation of IDBI Bank is on and once the regulator clearance is obtained, financial bids will be invited. Asked if the strategic sale would be completed in the next fiscal, Pandey said “Yes, of course”. He also said that the government has received good response from both domestic and foreign investors for the deal.
Rationale and Benefits
The strategic sale of IDBI Bank is part of the government’s disinvestment target of Rs 1.75 lakh crore for the fiscal year 2023-24. The government aims to raise Rs 1 lakh crore from selling its stake in public sector banks and financial institutions, including IDBI Bank.
The strategic sale of IDBI Bank is expected to bring in private capital, technology and best management practices for the bank. It will also help the bank to improve its efficiency, profitability and customer service. The strategic sale will also reduce the government’s fiscal burden and enable it to focus on other priority sectors.
The strategic sale will also benefit LIC, which holds 49.24 per cent stake in IDBI Bank as of December 2023. LIC had acquired majority stake in IDBI Bank in January 2019 as part of a bailout plan. The strategic sale will help LIC to exit from the bank at a higher valuation and free up its capital for other investments.
Challenges and Risks
The strategic sale of IDBI Bank may face some challenges and risks such as legal hurdles, employee resistance, valuation issues and market conditions. The strategic sale may also affect the existing customers, shareholders and creditors of the bank. The strategic sale may also have implications for the banking sector as a whole, especially for the public sector banks that are facing competition from private players.
The government and DIPAM will have to ensure that the strategic sale process is transparent, fair and competitive. They will also have to safeguard the interests of all stakeholders involved in the transaction. They will also have to monitor the performance and compliance of the buyer after the completion of the deal.
Conclusion
The strategic sale of IDBI Bank is a significant step towards the privatisation of public sector banks in India. The government expects to complete the deal in the next financial year after obtaining the necessary approvals from the regulators. The strategic sale will help the government to achieve its disinvestment target and also improve the performance and governance of IDBI Bank.