The government on Friday invited expressions of interest (EoIs) for IDBI Bank and offered to sell a total of 60.72% stake in the bank, including major portions of the shares held by the government and state-run Life Insurance Corporation (LIC).
IDBI Bank’s stock closed 0.71% higher on the BSE on Friday. At the current market price, the stake being offloaded is worth Rs 27,800 crore.
With the consent of the regulators — the Reserve Bank of India and the Securities and Exchange Board of India — the government has made the mandatory glide path for stake reduction for the buyer more flexible than what is specified for promoters of private banks.
The buyer, therefore, would get 15 years to bring down the equity to 26%. Of course, in the first five years, 40% of the equity capital would be locked in, as per the RBI guidelines.
The last date for submission of EoI is December 16. While the Centre is keen to conclude the transaction during the current financial year, it may spill over to the next year, given the formalities to be completed. Banks, non-banking financial companies and private equity funds have already shown interest in IDBI Bank.
The Centre’s disinvestment receipts so far this fiscal year have been Rs 24,544 crore, as against the annual target of Rs 65,000 crore.
“A cumulative 60.72% of the shareholding shall be divested. GoI shall divest such number of shares representing 30.48% and LIC of India shall divest such number of shares representing 30.24% of the equity share capital of IDBI Bank, along with transfer of management control in IDBI Bank,” the department of investment and public asset management (Dipam) said in a statement.
Currently, LIC holds 49.24% in IDBI Bank, while the government holds 45.48%. On May 5, 2021, the Cabinet Committee on Economic Affairs had granted in-principle approval for the strategic disinvestment of IDBI Bank along with transfer of management control.
IDBI Bank posted profit after tax of Rs 2,439 crore in FY22. Its net interest margin stood at 3.73% and return on equity at 13.60%. The bank’s capital to risk (weighted) assets ratio stands at a comfortable 19.06%.
As per the EoI conditions, private sector banking companies, foreign banks, NBFCs, and alternative investment funds registered with Sebi are among the entities eligible to bid. However, large industrial/ corporate houses and individuals (natural persons) aren’t eligible.
Financial eligibility criteria for the bidders include a minimum net worth of Rs 22,500 crore. Also, the bidder must have reported profits after tax in at least three out of the last five financial years. “The interested parties may submit EoI as a sole bidder or as a part of the consortium comprising of not more than four members with one member designated as lead member. The lead member would have a minimum 40% equity contribution in the consortium,” the Dipam statement added.