Tweak in Act to grant IDBI ‘bank licence’

The Centre is set to amend the IDBI (Transfer of Undertaking and Repeal) Act, 2003, to provide the lender a banking licence after the government offloads its stake, said an official, clearing a major hurdle in its strategic sale.

The stake sale plan was delayed as the government selling its entire shareholding in the bank would have left the lender without a banking licence, requiring the new owner to apply for a fresh one.

The government will move amendments to the Act in the Finance Bill 2021, which will grant a licence to IDBI Bank under Section 22 of the Banking Regulation Act. Earlier, when IDBI bank was converted from a development bank to a banking company, it was exempt from obtaining a banking licence from the Reserve Bank of India (RBI).

Section 22 of the Banking Regulation Act states that no company shall conduct banking business in the country unless it holds a licence issued by the RBI.

Business Standard had earlier reported the Centre was in talks with the RBI on the issue.

Presenting the Union Budget on Monday, Finance Minister Nirmala Sitharaman announced that a number of transactions, including IDBI Bank stake sale, will be completed in 2021-22.

“Industrial Development Bank of India shall be deemed to have obtained a licence under the said section 22, which will be a condition precedent to disinvestment of government’s stake in (IDBI) Bank resulting in receipts to the government,” according to the memorandum.

The amendments have been done in consultation with the RBI, said a top government official.

The government currently holds a 45 per cent stake in IDBI Bank, and 49 per cent is with Life Insurance Corporation of India. The remaining is held by financial institutions, foreign portfolio investors, individuals, among others.

Not making this change would have eroded the value of the government’s shareholding, the official added.

The interested buyers will now have comfort that they need not apply for a fresh banking licence, said another senior government official. This sweetens the deal, and at the same time would ensure continuity of banking operations, the official said. He added the change would lead to seamless change in management control of the bank, if LIC also brings down its shareholding. However, the interested buyer will have to meet the fit-and-proper criterion, and proper screening would be done by the RBI, the second official said.