InvestorQ : Why is this exemption on minimum public shareholding so important for IDBI Bank sale?
shrinidhi Rajan made post

Why is this exemption on minimum public shareholding so important for IDBI Bank sale?

3 weeks ago

First a quick recap on where this confusion on exemption comes from. IDBI Bank is still considered to be effectively a government owned bank. Here is why. LIC holds 49.24% in IDBI and the Indian government owns 45.48% in IDBI Bank while public holds 5.28%. In addition, you must also note that, LIC is 96.5% owned by the government of India, so the actual effective holding of the central government in IDBI Bank is 93%. That clearly makes it a government company, although the government wants to play safe and seek clarification.

But why is this exemption so material? Remember that IDBI Bank was supposed to be the case study for strategic sale of PSU Banks, but it did not work out that way. With the government infusing Rs27,000 crore capital into IDBI Bank, things have changed for the better in a number of ways. Sample these. The gross NPAs have come down and most of the toxic assets are provided for. That means even the net NPAs are sharply down and the profitability ratios of IDBI Bank are finally showing signs of improvement.

The MPS exemption would be a kind of sweetener for the strategic investors. This will allow them to take over IDBI Bank, and not worry about 25% public shareholding for the next five years, as against the current outer time limit of 3 years. That gives these potential buyers of IDBI Bank more time to put the house in order. The 5 years would be like a sweetener that would make the deal more attractive for the government to market the idea. There seems to be a strong case to classify IDBI Bank as a public sector holding, but we look to SEBI.