The Centre will soon float an expression of interest (EoI) for strategic disinvestment of IDBI Bank and the transaction may provide a template for privatisation of public sector banks as per the new public sector enterprises policy, department of investment and public asset management (Dipam) secretary Tuhin Kanta Pandey said on Wednesday.
IDBI Bank will be the first of its kind transaction where a bank will be privatised in the real sense even though it is even now perceived as a private bank from the regulatory point of view as the government holds 45.48%, below the 51% threshold. State-run Life Insurance Corporate holds 49.24% of the lender.
“The Department of Financial Services is seized of that matter. It’s important that the transactions get completed and particularly which is ongoing… learnings are imbibed, models are developed and benefits demonstrated (like in the case of Air India),” Pandey said responding to a question about whether the government will undertake more bank privatisations or not after IDBI Bank.
The official said much apprehension about employees losing jobs after privatisation was misplaced. “On the contrary, there has been more hiring by Air India,” Pandey said at a virtual event organized by industry body Ficci.
The Budget for FY22 unveiled the new public sector enterprises policy which entails that the government will have a minimum presence in the four broad sectors including banking. This will essentially mean that the number of public sector banks (PSBs) could be brought down to three-four from twelve now through privatisation and consolidation.
“In my opinion, it is a calibrated, gradual approach and demonstrating learning and going forward,” Pandey said on bank privatisation.
Following improvement in asset quality, the IDBI Bank exited the prompt corrective action (PCA) framework of the Reserve Bank of India in March 2021. After a gap of five years, it was back in the black with a net profit of Rs 1,359 crore for FY21. It posted a net profit of Rs 2,439 crore in FY22.
Even though the exact size of stake dilution is not yet clear, the government and promoter LIC may together offer to offload around 60% stake in the lender.
The share price of IDBI Bank closed at Rs 46.3 on the BSE Wednesday, up 4.4% from the previous closing price.
While the Centre is keen to conclude the transaction during the current financial year, it may spill over to next year if bidders seek extra time. Banks, non-banking financial companies and private equities evinced interest in the IDBI Bank’s stake in informal interactions with the government.