Govt presses on with plan to sell IDBI Bank stake

RAISING THE BAR Bank to get a professionallyrun board after privatisation; discussions are at an advanced stage

NEW DELHI/MUMBAI: The government is determined to privatise IDBI Bank Ltd.

One of the options being discussed is selling its almost 86% stake in the lender to institutions such as state-run Life Insurance Corp. of India (LIC), a person familiar with the development said, adding that the discussions are at an advanced stage. Once privatised, the bank will be run by professionals, the person said.

The proposals were discussed at a meeting of senior bankers with the government on Friday in Mumbai. If the move is successful, the government will be relieved of the responsibility of recapitalising the struggling lender.

To be sure, LIC’S potential stake purchase will be constrained by rules that restrict it from owning more than 15% in a single entity. LIC held 10.82% in IDBI Bank as of March end, according to BSE data.

reported on June 4 that the government was exploring a stake sale in IDBI Bank to a clutch of private equity investors as one of the options to slash its stake to less than 50%.

IDBI Bank is not governed by the bank nationalisation Act, making it easier for the government to divest control. OPTIONS ON THE TABLE: 1. Selling government’s stake to other institutions like LIC

Selling stake to private equity investors annual general meeting on August 13. One of the items on the agenda is raising capital through various modes, including qualified institutional placements.

Shareholders have agreed to increase IDBI Bank’s authorised capital to ₹8,000 crore from ₹4,500 crore, the bank told BSE last month. The increase could facilitate the sale of 51% or more stake.

The government has been trying to privatise IDBI Bank for the past couple of years in the wake of mounting losses and rising bad debts. IDBI Bank’s loss widened to ₹8,237.92 crore in the fiscal year ended 31 March from ₹5,158 crore in the previous year.

Its gross bad loans almost doubled to ₹55,588.26 crore during fiscal 2018, which is 32.36% of the bank’s gross advances during the year.

The government on June 4 named IDBI Bank’s managing director and chief executive officer MK Jain as deputy governor of the Reserve Bank of India. There is no replacement for him at IDBI Bank yet.

The government has also been pushing for consolidation of state-run banks to bring in synergies, reduce costs and create some globally competitive banks.

Except for the merger of the five associate banks and Bharatiya Mahila Bank last year with State Bank of India, consolidation has been a non-starter.