To make the strategic disinvestment of IDBI Bank hassle-free, the government may give an assurance to the potential buyer in the share purchase agreement (SPA), that the latter will have a free hand in running the bank.
On October 7, the Centre invited expressions of interest (EoIs) for IDBI Bank and offered to sell a total of 60.72% stake in the bank, including 30.48% held by the government and 30.24% by LIC, along with the transfer of management control.
Post the transaction, the government and LIC together will have a 34% residual stake in the lender (19% by LIC and 15% by the government).
According to the Banking Regulation Act, 1949, the voting right of a shareholder or shareholders acting in concert in a bank can’t exceed 26%, even if they own more than 26%.
In effect, the acquirer of IDBI Bank with 60.72% stake will have a voting right of 26% only, the same as the government and LIC.
Even with this regulation, the potential buyer won’t face any problem in appointing a managing director, CEO and other board members. However, there could be issues of disagreement on decisions taken in the annual general meetings by voting as both the buyer and the government/LIC would have the same voting rights.
“When we reach the SPA stage, this point will come up. Depending on what bidders want, we could give them comfort in the SPA by assuring that the government would not interfere in the functioning of the company,” an official said.
The official said the government would not like to be a hindrance in the functioning of the bank after passing the management control to the buyer.
The government and LIC would like to gain from the upside of the share price at an opportune time and exit from the bank altogether.
“If we had offered to disinvest more, say 74% (up to maximum FDI allowed in banks), the deal size would have become too large for some of the potential investors. We want more bidders to participate and ensure competition is reasonable in acquiring the bank,” the official said.
In the road shows before EoI, domestic NBFCs, and private equities, overseas funds and foreign banks had expressed interest in buying IDBI Bank.
IDBI Bank share price rose 9.02% on Monday to close at `46.55 from the previous closing price even though the BSE Sensex closed 0.34% down at 57,991, showing an increased interest in the lender by investors after EoI was announced.
The last date for submission of EoI is December 16, 2022.
IDBI Bank posted a profit after tax of `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%.