The Cabinet Committee on Economic Affairs (CCEA) on Wednesday, October 14, approved the strategic sale and restructuring of IDBI Bank, selecting Canada’s Fairfax Financial Holdings as the strategic buyer for a 60.72% stake in the lender for ₹52,878.08 crore, in what is set to become India’s largest foreign direct investment (FDI) transaction in the financial services sector.
The stake sale comprises 30.48% held by the Government of India and 30.24% held by LIC. Fairfax’s winning bid of ₹81 per share exceeded the independently determined benchmark valuation of ₹75.99 per share. An earlier round of bidding had failed after bids fell short of the then reserve price of ₹94.42 per share, prompting the government to seek fresh best-offer bids from qualified bidders.
Following the transaction, the Government of India will retain a 15% stake and LIC 19%, taking their combined holding to 34%. The government has also empowered the Alternative Mechanism to undertake future minority stake sales of its residual holding through the open market. LIC will manage its remaining stake in accordance with regulatory requirements.
The strategic sale follows a privatisation process that spanned over several years and involved a two-stage competitive bidding framework. Five entities submitted expressions of interest, four qualified for the next stage and two eventually submitted technical and financial bids after regulatory and security clearances.
The government said the restructuring is intended to bring growth capital into the banking system, support economic expansion and improve credit availability for micro, small and medium enterprises (MSMEs).
Fairfax will also be required to make an open offer for IDBI Bank shares under market regulations.
A key aspect of the transaction relates to Fairfax’s existing ownership of around 40% in CSB Bank. Given RBI norms that restrict a promoter from holding controlling stakes in multiple banks, Fairfax will either have to merge CSB Bank with IDBI Bank or exit its CSB Bank holding. The approved restructuring framework envisages a merger route within two years.
Notably, despite retaining a combined 34% stake, the government and LIC will not have board seats in IDBI Bank after the transaction, marking a clean transfer of management control to the strategic investor.
Abizer Diwanji, Founder of NeoStrat Advisors LLP, told CNBC-TV18 the transaction was a “step in the right direction” after years of deliberation, adding that the strategic restructuring model and gradual reduction in state ownership should strengthen the lender over time. He said lower government and LIC ownership over time would help improve the bank’s performance.
Veteran banker Dinesh Khara told CNBC-TV18 that the continued shareholding of the government and LIC would provide stability during the transition phase.
IDBI Bank share price settled 8.3% on the NSE, quoting at Rs89.85 apiece. Year-to-date, the lender’s stock has dropped nearly 14%