Question
Many congratulations on this mega deal that has finally seen the light of day. And as you have rightly indicated, possibly before the financial year closes, ₹52,838 crore is what the government is expecting to receive, with your share, of course, being around ₹26,000 crore. Having said that, as far as the IDBI strategic restructuring is concerned, what are the next steps that we are looking at, and also particularly in terms of the signing of the SPA? When is that expected, and what are the other important milestones, so to speak?
Answer:
As you rightly said, the strategic buyer has been approved by the Union Cabinet. And the strategic buyer will now present its credentials to the Reserve Bank of India (RBI). At the EOI stage of this transaction, all interested parties had to undergo a fit and proper assessment with the RBI. And only those parties which were successful in the fit and proper assessment became the qualified parties for the transaction. So, the strategic buyer, finally in a race, it’s only one person who reaches the finishing line. The strategic buyer who came out the winner and has been approved, will have their technical papers submitted to the Reserve Bank of India, and will present their credentials, and will have to meet the conditions prescribed by the RBI in the fit and proper assessment, and submit a roadmap for the same, including the glide path and so on. After that, the share purchase agreement will be signed between the parties. There will be an open offer for the minority stakeholders, who hold about 5.3% in the market. After that open offer – the process of closing the deal and further steps will go on. So, we hope that by the end of the current financial year, the deal will be closed in all respects, and the Government of India and LIC would get their respective shares from the equity sale.
Question
So, by the end of the financial year, do you expect the open offer also to happen by that timeline?
Answer:
The open offer will have to be issued by the strategic buyer immediately after the signing of the share purchase agreement.
Question
So, the SPA signing may be somewhere around February-March, is what is likely. What if all the timelines are not met by March? Then the actual receipt of the money would spill over into the next financial year, so to speak?
Answer:
I think yesterday is evidence enough that we have developed good habits. We achieve milestones and announce them. Wait for more.
Question
What about the other residual stake sales in IDBI Bank after this particular transaction? For instance, the Government of India holds 15%, while LIC holds 19%. I suppose LIC has to come down to 15% in two years as per the RBI mandate, sir. Kindly take us through that.
Answer:
You very rightly said that this is strategic restructuring, because IDBI is already a banking company promoted by LIC. After the strategic sale, the promoter will change. And after the acquisition of a 60.72% stake, the government will retain 15%, for which powers have been delegated to the alternative mechanism. This essentially means that in future, depending on the market conditions, we can do minority stake sales in the open market for ordinary retailers, so that the wealth that is created can be gradually shared with the citizens of India. But that will be a gradual process. LIC has been directed by the regulators to bring down its residual stake from 19% to 15% within two years of the closing of the deal. That is the mandate under the direction of the regulator, which they will comply with. And so, you can expect that the float will increase because as LIC meets its regulatory requirements, an additional 4% of stock will be available to ordinary investors to partake in this experiment.
Question
Also, on this open offer – how much economic sense does it make from the retail investor perspective?
Answer:
Retail investors have only to gain. If the strategic restructuring is successful, there will be private participation, better management practices, better infusion of technology, and evidence shows that private banking is marginally more efficient. Also, our internal research shows that the net interest margins of private sector banks last year were 64 bps higher than those of public sector banks. So that is a real gain in the marginal setting of interest rates. And 64 bps is a very significant real interest rate gain for the economy. The spread between the credit and deposit rates will come down, and that will increase the productive efficiency of our financial sector, the banking sector, and the economy at large, and all the minority stakeholders will gain from it.
Question
There is also another pre-condition that, basically, Fairfax will have to either exit or merge its stake in Catholic Syrian Bank with IDBI Bank. So, how is that going to unfold? Is there anything that the strategic buyer has already indicated about what their game plan is, and what will be the RBI’s role in all of that?
Answer:
You are correct. It’s a regulatory requirement as per the fit and proper assessment that within two years from the closing of the deal, the strategic buyer will have to either merge the existing bank that they own, which is Catholic Syrian Bank, or exit it and hand it over to another buyer, because finally, one entity can hold only one banking licence in India. That is between the RBI and the strategic buyer, and that’s a condition of the fit and proper assessment and also one of the conditions in the share purchase agreement. So, they will be complying with it in due course. It will not be right for me to prejudge and say that they will go this way or that way.
Question
Just one more question on this. In case Fairfax decides to actually merge, and they go with that option, then won’t their shareholding in the bank go up? Will GOI be okay with that?
Answer:
That is not an issue we get into. We become a public shareholder with 15% residual equity. And after that, the responsibility of running the bank and capitalising it from time to time lies with the strategic buyer and the new promoter.
Question
The successful announcement of this deal has whetted appetites, and expectations are really running high. What kind of disinvestment target are you now looking at? In a way you’ve already exceeded that if you take the transaction amount that will be coming in. And in the past also, the way the open offers have happened, they’ve taken everybody by surprise. ₹50,000-55,000 crore has just come in there. So could you give us an idea about where this goal is now headed and what can we expect next year?
Answer:
The momentum that we have built up, the technical capability that we have built up in the department, and the market research capability that now exists here—we have shown all of this through actual performance. LIC was the largest public offer in the country so far. And that momentum we will sustain. As this is a difficult year from the geopolitical point of view, and the strain on the finances of both the government and the balance of payments in the country at large is significant. This deal will have a positive impact on both fronts. It will be the largest FDI in the financial sector so far. It will bring in about $5.6 billion in FDI into the country. And in addition to that, it will generate fiscal revenues. But as the market conditions permit, we will continue to do what we have been doing this year. If that leads to exceeding the target, so be it.
Question
So, any broad number that you can share with us? Maybe around ₹1 lakh crore is something that you may be looking at in the current year. But then, does it not make next year more challenging?
Answer:
We don’t like to speculate and overclaim. We perform, and our performance will reveal the numbers.
Question
The other aspect that a lot of people are talking about is the fact that with the entry of another government-promoted bank into the private banking space—and it’s a very competitive space out there—what about the privatisation plans for our public sector banks? There was a lot of steam on that front a couple of years back, but then we have not really seen action on that. So, would it be appropriate to expect the government to move on that after this big deal has gone through, or is that a separate matter altogether that will be looked at separately by the GOI?
Answer:
That is not my domain, and so I would not like to comment on it.
Question
That’s a pretty straightforward reply. Also, in terms of your dividend collections, could you give us a sense of where we are at the moment?
Answer:
The dividend collection season starts now. The final results have been declared. All CPSEs are holding their AGMs. Some CPSEs have started paying the residual dividends of the last fiscal year. This process is likely to take a month to complete. We will start doing the CMCDC meetings now. In terms of a fair guidance on the second half of the year the geopolitical situation on the oil front is difficult. And there will be some slippage in dividend flow through the oil companies. But we are also listing fresh companies, particularly the Coal India subsidiaries and the India Infrastructure Finance Company Limited. Through that, additional revenues will come in, including special dividends. So, we hope to close the gap by the end of the financial year.
Question
So, in the oil space, this slippage in terms of dividend payouts, is it going to be more on the OMC side, the downstream side rather than the upstream?
Answer:
We will review it. We will review the exact numbers. The oil sector is evolving. It’s also integrating across the value chain. That’s true. We’ll know more about it in this quarter when we hold the CMCDC meetings with the respective PSUs.
Question
The listing of the subsidiaries of these big PSUs—is that also a way of making sure that they meet their requirements in terms of fundraising and governance? And, the government later can also take its share of the proceeds through dividends from the PSU parent. Is that what you just spoke about?
Answer:
Yes, it will be a balanced 50:50 exercise. 50% would be paid as special dividends and the remaining 50% would be retained by them for their internal investment needs.
Question
Also, the fact remains that this deal is also raising expectations in terms of the other strategic disinvestments or, if you can say, strategic restructuring of other plans for which EOIs had been invited and all of that. We have not heard much in terms of BEML, SCI, or even CONCOR, for that matter. So, could you give us a sense of whether you would be pushing in that direction as well, or is that something that is really not on the table at the moment?
Answer:
I would not like to name individual CPSEs, but the strategic restructuring of CPSEs will continue. What has been approved will be taken forward, and you will hear from us in due course.