Govt to allow foreign ownership of over 51% in IDBI Bank

This is set to raise the investor interest in the ongoing disinvestment process of the bank where government and Life Insurance Corporation of India are selling 60.72% stake and transferring management control to the winning bidder. 

“The residency requirement of the Promoter, under the RBI’s “Guidelines for ‘on tap’ Licensing of Universal Banks in the Private Sector, 2016″, is in context of new/ prospective banks. However, as IDBI Bank is an existing banking company; hence, for the purposes of the Transaction, the said residency criteria would not apply to a consortium consisting of funds/ investment vehicle incorporated outside India,” the department of investment and public asset management (DIPAM) said in response to queries from interested bidders.  

One of the queries on the eligibility criteria had sought clarity on whether a consortium can solely consist of funds or investment vehicle incorporated outside India or non-residents, and it can own more than 51% in either a non-official financial holding NOFHC structure or in case an investment vehicle is incorporated outside India. 

The government also said that it may consider relaxing the five-year lock-in period for shares if a non-banking financial company or NBFC is merged into IDBI Bank.  

“The lock-in requirements in event of such amalgamation shall be addressed suitably, in consultation with RBI, on a case-to-case basis,” DIPAM said in its response to queries. 

The government had clarified last week that the norms that are applicable to public sector banks will not apply to IDBI Bank after the government and LIC sell their stakes, even though they together will continue to hold about 33% in the bank. The government has also said that IDBI Bank will operate as a private sector bank even if it were to be taken over by a foreign bank. 
 
The government also clarified that it has applied for reclassification of its shareholding as a public shareholder, in response to queries that whether Centre and LIC will hold any board seats or participate in the management and governance of IDBI Bank after the sale.  

At present, the government and LIC hold more than 94% stake in the bank. Both are classified as promoter shareholders. 
 
The government has also said that minimum public shareholding norms (MPS) imposed by Securities And Exchange Board of India that require a listed company to have minimum public ownership of 25%, were also being examined and that the appropriate transition period for MPS compliance was also under consideration.

IDBI Bank was exempted from MPS norms due to its government ownership. IDBI Bank was under the Reserve Bank of India’s prompt corrective action (PCA) framework from May 2017 to March 2021. Two months after the bank exited the framework, the cabinet committee on economic affairs gave in-principle approval for its strategic disinvestment and transfer of management control. 

The government recently conducted road shows in the US and locally for the stake sale. Several entities, including Prem Watsa’s Fairfax Financial Holdings, a clutch of Russian investors and large Indian entities, are expected to be among suitors. 

The government will adopt a two-stage process for divestment. In the first stage, bidders that meet initial eligibility criteria must clear a ‘fit and proper’ assessment by the Reserve Bank of India and get security clearance from the home ministry. Then, qualified bidders will sign a confidentiality agreement with the government and proceed to the second stage, where financial bids will be sought.   

LIC will sell 30.24% of its 49.24% holding in the bank, while the government will dilute 30.48% of its 45.48% holding. At present, 5.28% is held by the public. Interested bidders need to have a minimum net worth of ₹22,500 crore, or $2.85 billion, according to the latest audited financial statement. Potential suitors have been given a deadline of 16 December to submit their bids.