InvestorQ : Is the government adopting a new approach to selling its stake in IDBI Bank?
Mahima Roy made post

Is the government adopting a new approach to selling its stake in IDBI Bank?

2 months ago

This time around, the government has decided to adopt a 2-stage approach to privatization of IDBI Bank. In the first stage, the eligibility of the potential bidders will be evaluated thoroughly and only the eligible bidders will go into the second stage. In the second it would entirely be run by the transaction advisors looking to get the best value for the divested stake. This modified process is not only more elaborate but is likely to make the divestment process more organized. Above all, it will reduce the chances of embarrassment that the government had to go through in some of the specific recent divestment cases.

For now, the government is yet to clarity how much stake it plans to sell in IDBI Bank, although it is clear that a majority stake i.e. over 51% will be hived off. In that case the stake sale will have to be done jointly by government of India and LIC. That is because, LIC and the government of India jointly hold 94.71% stake in IDBI Bank, with LIC holding a slightly larger stake than the government. Government has ruled out total exit from the bank. However, it would not be just a divestment for raising revenues but a proper strategic sale where private sector buyers get control over decision making with private majority ownership.

Let us look at the 2 stages as explained by DIPAM. The first stage entails knowing the bidders better, whether they meet eligibility conditions, their SWOT analysis etc. They will also evaluate whether the bidders have applied for a banking licence. It includes checking bidder’s capacity, legal scrutiny, and the track record of directors / business owners. IN the second stage, the bids will be screened on a number of financial and non-financial criteria. In the past; in the case of Central Electronics, Pawan Hans and HLL Lifecare, the government had to go through an embarrassment since the bidders were not evaluated thoroughly.