The Centre will float an expression of interest (EoI) for the strategic disinvestment of IDBI Bank next month with an aim to conclude the transaction by March 2023, a senior official told FE. The decision follows regulatory leeway offered by the Reserve Bank of India (RBI) and the Securities and Exchange Board of India (Sebi) regarding the glide path to reduce promoter stake in the bank post transaction.
Even though the exact size of stake dilution is not yet finalised, the source indicated that the government and promoter Life Insurance Corporation may together offer to offload up to 60% stake in the bank. The government and LIC reckon that sale of 74% stake, which is at par with the maximum FDI allowed in private banks, may not be feasible given the current market conditions. Also, if a buyer starts with such high equity stake in the bank, it will face difficulty in reducing the holding to 26% over a period of time as per the RBI’s glide path.
After reporting losses for five years, IDBI Bank posted a net profit of `1,359 crore for FY21; its net profit rose to `2,439 crore in FY22.
Currently, LIC (49.24%) and the government (45.48%) hold a 94.78% stake worth about `37,848 crore in IDBI Bank at the current market prices. The bank’s share price closed at `35.2, down 3.96% from the previous close, on the BSE on Monday.
“We would like to complete this transaction in the current financial year, but sometimes bidders ask for more time. Also, security clearance of the bidders have to be in place,” the official said, adding that banks, non-banking financial companies and private equities evinced interest in the IDBI Bank stake in informal interactions with the government.
To make the deal attractive, the government had urged the RBI to give the potential buyer some leeway in complying with the regulatory norms for private banks, including a time-bound reduction in promoter holding. It also wants a longer window for the IDBI Bank to comply with market regulator’s minimum public float norm of 25% for listed companies.
“A combined meeting with the RBI and Sebi was held to find solutions to issues of regulatory overlap. We are settling these issues. The glide path to bring down promoter stake may be 10-15 years in this case,” the official said.
According to the RBI norms last revised in November 2021, the promoter of a private sector bank has to maintain a minimum of 40% of the paid-up voting equity share capital of the bank for the first five years after start of operations. The RBI also has the discretion to ask the promoter to pare the holding to the lock-in level over these five years or even earlier.
Similarly, a strategic investor in IDBI Bank may not like to disinvest stake in 3 years as stipulated by the Sebi, a period when it will likely be setting up a new management team, restructure business and attempting a rebranding of the banking company.
Being practically a government-run bank, IDBI Bank hasn’t had to comply with the Sebi norm so far, but once it becomes a private bank, such leeway won’t be available automatically. Currently, public holding in the bank is a little over 5%.