KPMG to advise govt on IDBI Bank sale, expression of interest in October

By: |
August 26, 2021 3:45 AM

Discussion will soon start with the Reserve Bank of India on the structuring of the transaction in terms of glide path (of the new promoter's holding), voting rights, etc,” a senior official told FE.

Success in IDBI Bank sale may be indicative of broader investor appetite in state-owned banks with adequate loan-loss reserves.Success in IDBI Bank sale may be indicative of broader investor appetite in state-owned banks with adequate loan-loss reserves.

The government has appointed KPMG India as the transaction adviser for strategic disinvestment of its 45.48% stake in IDBI Bank. It would seek expression of interest (EoI) from potential buyers in October, in line with the plan to complete the transaction in the current financial year, official sources said.

As per the plan, the government will exit the bank by divesting its entire stake worth about Rs 18,500 crore at the current market prices and promoter Life Insurance Corporation will offer to sell a portion of its 49.24% stake with an intent to relinquish management control.

Discussion will soon start with the Reserve Bank of India on the structuring of the transaction in terms of glide path (of the new promoter’s holding), voting rights, etc,” a senior official told FE.

Even though RBI will allow the new promoter of IDBI Bank to hold more than 51%, the promoter has to ultimately bring down its holding to the regulatory limit of 15% (a RBI panel had suggested last year to increase it from 15% to 26% for promoters and from 10% to 15% for non-promoters) in a prescribed time period. Also, the stipulation in the Banking Regulation Act, 1949 is that no shareholder of a banking company – PSB or private sector bank – can exercise voting rights more than 26%.

After a failed attempt a few years ago, the government diluted its stake in IDBI Bank in January 2019 in favour of LIC, which then became the promoter in the bank with 51% stake. Under a special dispensation, the Insurance Regulatory and Development Authority has allowed LIC to hold 51%, against the norm of 15%. The insurer will, however, have to pare its stake to 15% in due course.

Success in IDBI Bank sale may be indicative of broader investor appetite in state-owned banks with adequate loan-loss reserves.

After a gap of five years, IDBI Bank starting making profits in FY21 — it reported a net profit of Rs 1,359 crore in the years. Following improvement in asset quality, the bank exited the prompt corrective action (PCA) framework on March 10. It can resume corporate lending which was stopped after it came under PCA.

The bank reported over 300% jump in its net profit to Rs 603 crore for the June 2021 quarter, aided by higher growth in net interest income (NII) and improvement in asset quality.

Of the Rs 1.75-lakh-crore disinvestment target for FY22, the government has budgeted Rs 1 lakh crore from disinvestment of government stake in public sector financial institutions and banks such as LIC IPO and IDBI Bank strategic sale.

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