IDBI Bank Divestment: Investors Seek Exceptions to Banking Laws to Close IDBI Bank Deal

- Advertisement -

The divestment of IDBI Bank is moving to the next phase, and an asset valuer is set to be appointed in a few weeks. However, there is a question about whether the Reserve Bank of India (RBI) will make exceptions to the existing banking laws to ensure the closure of the divestment process.

Two investors, Kotak Mahindra Bank and Prem Watsa-led Fairfax India Holding, have submitted expressions of interest. They have sought a structure whereby they would be allowed to retain their existing banking entities alongside IDBI Bank for at least three years after the acquisition. This is because if IDBI Bank is merged with their existing banks, the government and Life Insurance Corporation of India (LIC), which would continue to hold 30% stake in IDBI Bank after the divestment, may become a major shareholder of the merged entity.

They propose that their existing banking entities should be allowed to coexist alongside IDBI Bank for a period of at least three years following the acquisition, after which they would merge these entities with their respective banking institutions.

- Advertisement -

The RBI is hesitant to make exceptions because it believes that this could set a precedent for future divestments of state-owned banks. However, the government is keen to conclude the IDBI Bank divestment this fiscal as planned. The transaction is expected to fetch Rs 22,500 crore, which would be critical to boost the government’s planned divestment target of Rs 51,200 crore for FY23.

This request for an exception stems from the concern that if IDBI Bank were to be merged with their existing banks, the government and LIC, who will continue to hold a 30 percent stake in IDBI Bank after the divestment, may become significant shareholders in the merged entity. Under the current banking regulations, it is not permissible for a bank to invest in another bank and for a promoter to be invested in two banks simultaneously. Consequently, Kotak Mahindra Bank’s request to maintain IDBI Bank as an associate company and Fairfax’s desire to retain IDBI Bank alongside CSB Bank are not in compliance with the existing framework. The Reserve Bank of India is wary that granting an exception in the case of IDBI Bank’s divestment could establish a precedent.

A senior executive knowledgeable about the matter remarked, “There may be additional divestments of state-owned banks in the future, and if an exception is made for IDBI Bank, it could serve as a precedent for similar divestment proposals.” However, it’s worth noting that in 2018, the RBI did allow Fairfax India Holdings to acquire a 50 percent stake in the Catholic Syrian Bank (now CSB Bank), exceeding the permitted promoter holding of 26 percent.

- Advertisement -

The government’s perspective appears to differ slightly. Another senior official, who preferred not to be quoted, stated, “Large transactions such as the IDBI Bank divestment may face obstacles if a different approach is not adopted. The paramount consideration should be bidders meeting the ‘fit and proper’ criteria set by the RBI.”

Additionally, it has been learned that the government is eager to conclude the divestment of IDBI Bank during this fiscal year as originally planned. This transaction, expected to generate approximately Rs 22,500 crore, is pivotal in achieving the targeted divestment goal of Rs 51,200 crore for FY23. According to DIPAM’s website, the total divestment receipts for the current fiscal year currently stand at Rs 5,600.93 crore.

- Advertisement -

Share this article...

Comments

LEAVE A REPLY

Please enter your comment!
Please enter your name here

More News...

Latest

Bank Manager took Massage inside branch, Video goes viral

Bank Manager took Massage inside branch, Video goes viral

Rs.975 crore Bank Fraud: ED arrests chairman of company in Mumbai

Rs.975 crore Bank Fraud: ED arrests chairman of company in Mumbai

Case filed against SBI Manager in Death of Electrician

Case filed against SBI Manager in Death of Electrician

Funding for Fintech Companies decreased by 99%: Report

Funding for Fintech Companies decreased by 99%: Report

MTNL Defaults on Rs 37.5 crore Loan from Punjab and Sind Bank, Government Steps in

MTNL Defaults on Rs 37.5 crore Loan from Punjab and Sind Bank, Government Steps in

Dividend paid by PSU Banks to Government, Check Bank Wise Amount

Dividend paid by PSU Banks to Government, Check Bank Wise Amount

National Housing Bank Recruitment 2024, Check Vacancies and Apply Online

National Housing Bank Recruitment 2024, Check Vacancies and Apply Online

Scheduled Commercial Banks’ Business in India: RBI Data

Scheduled Commercial Banks' Business in India: RBI Data

FIR against Union Bank Officer for making Fake Marriage certificate

FIR against Union Bank Officer for making Fake Marriage certificate

10 Banks in India faced minor disruptions due to Microsoft Outage

10 Banks in India faced minor disruptions due to global tech outage

Latest News