InvestorQ : Is it true that the government is also planning to push the sale of IDBI Bank in the current fiscal year itself?
vaishnavi mhatre made post

Is it true that the government is also planning to push the sale of IDBI Bank in the current fiscal year itself?

vidhya Laxmi answered.
1 year ago

Yes, that is absolutely correct. In fact, the government is moving on a war footing. The government is planning to trigger its stake sale in IDBI Bank simultaneously with the LIC IPO since LIC is the largest shareholder in IDBI Bank. This will avoid any major objections from investors who are investing in the LIC IPO. IDBI Bank was always supposed to be the first big experiment by the government to undertake a strategic sale of a PSU Bank.

In fact, the idea was to trigger the sale of IDBI Bank back in 2019 but had to be put off due to the pandemic. It was to be the basket test case for privatizing a PSU banks with effective shift in management control. Now, government plans to start roadshows for the proposed disinvestment of IDBI Bank from February 25 onwards. As of now, what we understand is that both government and LIC will look to sell their stake in IDBI Bank to a private buyer.

Here is the ownership structure of IDBI Bank. The government of India holds 45.48% in IDBI Bank and it is likely to offer the entire stake for sale. In addition, LIC holds 49.24% in IDBI Bank and that will be sold for sure ahead of the IPO, if possible. The advantage for the potential buyer is that they get a big chunk of 94.72% of IDBI Bank in one go along with transfer management control. However, the quantum of sale is yet to be finalized.

It is however not clear if the deal can happen in this year itself. The deal may not happen in the current financial year as time is too short. But the roadshow will gauge the interest level of investors for the IDBI Bank stake. Investors had expressed concerns in the past about the high level of non-performing assets of IDBI Bank and that is still a worry. But it could set the tone for more such sale.

What we know is that roadshows will virtual due to pandemic fears. The roadshows will be managed by specific intermediaries appointed by DIPAM, KPMG and Link Legal. The government is non-committal on the quantum of stake dilution by the Centre and LIC. RBI approvals will be required but there is a chance of government retaining 26% in IDBI Bank to give comfort to the lenders to IDBI Bank and other investors.