
The Reserve Bank of India has reportedly given its ‘fit and proper’ approval on bidders for IDBI Bank ahead of the Union Budget 2024, signaling a significant development in the disinvestment process. The central bank’s decision has heightened anticipation for the upcoming financial decisions to be made by Finance Minister Nirmala Sitharaman.
With the current market cap nearing Rs 95,000 crore, the Centre could potentially realize around Rs 29,000 crore from the disinvestment. The government and Life Insurance Corporation (LIC) collectively own 94.72 per cent of IDBI Bank, with LIC holding a 49.24 per cent stake and the government holding 45.48 per cent. Public shareholders account for the remaining 5.28 per cent. Centre wants to sell 60.7 per cent stake in the bank, comprising 30.5 per cent of its own and LIC’s 30.2 per cent.
IDBI Bank Disinvestment and Bidding Process
The Narendra Modi government initiated the process of divesting its stake in IDBI Bank in May 2021. The government awaited the RBI’s assessment to ensure that the bidders aligned with the fit and proper norms, ensuring compliance with regulations and avoiding scrutiny from other regulators. The central bank has provided reports on all bidders except for one foreign participant, causing a delay in the disinvestment process.
Market Response and Stake Details
Shares of IDBI Bank demonstrated a positive response, trading with gains of nearly 5 per cent amid the disinvestment developments. The government and Life Insurance Corporation (LIC) collectively own 94.72 per cent of the bank, with plans to sell 60.7 per cent stake, comprising both the government’s and LIC’s holdings. Market observers consider IDBI Bank a straightforward divestment candidate, especially due to its private lender operations and the government’s increased stake resulting from capital infusion to manage losses.
Challenges and Anticipation
Despite the ambitious privatization agenda of the Modi government, the progress has been limited, with efforts virtually frozen for the last 18 months due to the upcoming general elections. The government’s stance on privatization, especially with coalition partners, remains a topic of keen interest, with the upcoming Union Budget expected to provide crucial insights into the government’s financial strategies.
Recent Developments and Future Outlook
The recent disappointment in the divestment sphere has led to speculation that the Modi government might shift its focus from privatization to overhauling state-run firms. The government’s 2021 announcement to privatize most state-run companies has seen limited success, with only the sale of debt-ridden Air India to the Tata Group and a 3.5% stake in LIC being completed. The upcoming Union Budget and the government’s response to recent developments will be closely watched as the disinvestment targets for the current financial year are evaluated.