Cabinet clears strategic divestment of IDBI Bank

Govt, LIC to trim their stake

The Cabinet Committee on Economic Affairs (CCEA) has approved strategic disinvestment along with transferring management control in IDBI Bank, paving the way for both the government and Life Insurance Corporation (LIC) to reduce their shareholding in the lender.

LIC’S board has passed a resolution to reduce its shareholding, along with that of the government, in the bank “with an intent to relinquish management control and by taking into consideration price, market outlook, statutory stipulation and interest of policyholders”, said a statement by the government.

The government holds 45.48 per cent in IDBI Bank while LIC holds 49.24 per cent. The extent of stake dilution by both the government and the insurer will be decided while structuring the deal in consultation with the Reserve Bank of India (RBI). The decision of LIC’S board is in line with the Insurance Regulatory and Development Authority of India’s (Irdai’s) mandate to reduce the insurer’s stake in IDBI Bank below 15 per cent.

Approval from the cabinet will now give the Department of Investment and Public Asset Management (DIPAM) the authority to move ahead with divestment and appoint intermediaries for the sale.

The strategic buyer will have to infuse funds, bring in new technology, and implement best management practices for the growth of IDBI Bank. It will have to generate “more” business for the lender without being dependent on LIC or the government for

funds, the statement said.

The decision by LIC to sell its stake in IDBI Bank was a coordinated move by the government because a new buyer of the bank would want to hold a majority stake in the lender, said a government official.

A new buyer acquiring the government’s entire stake in the bank would have still left LIC as a co-promoter or a majority shareholder, affecting key decisions. DIPAM will now scout for a buyer that will have to meet the RBI’S fit and proper criteria, he said.

In the Budget for 2020-21, Union Finance Minister Nirmala Sitharaman had announced the government’s balance shareholding in IDBI Bank would be sold to private, retail, and institutional investors through the stock exchange. However, the pandemic derailed the government’s divestment plans, and Sitharaman, in this year’s Budget, announced a number of transactions, including of IDBI Bank, would be completed in 2021-22. In March IDBI Bank was removed from the RBI’S Prompt Corrective Action (PCA) framework after nearly four years, on improved financial performance.

The lender turned profitable in FY21 after five years and reported a net profit of ~1,359 crore for the financial year against a net loss of ~12,887 crore in FY20.