InvestorQ : Can you tell me what is the exemption that the government wants from SEBI in the matter of disinvestment of IDBI Bank?
Neelam Naik made post

Can you tell me what is the exemption that the government wants from SEBI in the matter of disinvestment of IDBI Bank?

Anu Biswas answered.
4 weeks ago

Due to the unique positioning of IDBI Bank, the government has sought clarification from SEBI on the subject of whether the relaxation of public shareholding norms applicable to PSUs would also apply to IDBI Bank or not. Initially, IDBI Bank was supposed to be a test case for privatization of government owned banks. However, that did not materialize and the government is now open to give up a majority stake in IDBI Bank to a strategic investor who can bring in capital and management expertise to run the bank more profitably.

However, strategic investors need sweeteners and one such sweetener would be if the extended time period for minimum public shareholding can be offered to the IDBI Bank also. Government wants SEBI to clarify if the 2-year relaxation in minimum public shareholding (MPS) norms would be applicable to IDBI Bank when privatised. There is a unique position that IDBI Bank finds itself in and that is due to the ownership structure. LIC is 49.24% owner of IDBI Bank while the government owns 45.48% in IDBI Bank.

In, India, listed companies are required to have minimum public shareholding of 25% within 3 years of being listed. However, state run units are exempted from this requirement. In the case of IDBI Bank, the confusion arises on two fronts. Firstly, the RBI has already classified IDBI Bank as a private bank for the purpose of bank ownership due to LIC being the predominant owner. Currently, both the government of India and the LIC have been classified as the promoter group for IDBI Bank. That is why this clarification is necessary.

Technically, since IDBI Bank is a private bank as per RBI classification, the relaxation on MPS or minimum public shareholding will not apply to IDBI Bank. If the government is planning a strategic sale of IDBI Bank, this relaxation on minimum public shareholding will sweeten the deal and make it attractive. It will give the strategic investor a full 5 years to comply with the minimum public shareholding (MPS) rule. Of course, there is still the option for the government to request the regulator to treat its shareholding as public holding.

There can be some arguments in favour of calling IDBI Bank a PSU bank. LIC owns 49.24% in IDBI Bank and the government owns 45.48%, taking their joint stake in IDBI Bank to 94.72%. Now, since the government holds 97.5% in LIC, it effectively holds over 90% in IDBI Bank, making it effectively a public sector unit. The only hitch is the RBI classification which may require a regulatory modification. Let us not forget that government has infused nearly Rs27,000 crore as capital to rescue the bank in the last 10 years, not a private bank luxury.