IDBI Bank stake sale is the largest FDI deal till date; Centre, LIC to continue to remain invested

In the largest foreign direct investment (FDI) deal and one of the most ambitious strategic disinvestments, the Union Cabinet on Wednesday approved the strategic restructuring of IDBI Bank with the sale to Canada’s Fairfax Financial Holdings for Rs 52,878.08 crore.

Under the deal, Fairfax Financial Holdings will acquire a 60.72% stake in the bank, comprising 30.48% equity shareholding of the Government of India and 30.42% stake held by the Life Insurance Corporation of India.

The transaction is expected to be completed this fiscal year, finance ministry officials explained. Within two years of signing the share purchase agreement (SPA), Fairfax Financial Holdings will be expected to either merge or exit its holdings in CSB Bank, in which it holds about a 40% stake.

There will also be a lock-in period of five years for Fairfax, following which it will have a 15-year period to slowly reduce its stake in IDBI Bank to meet RBI promoter holding norms of 26% stake, officials explained. RBI norms cap promoter stake in private sector banks to 26% of the paid-up share capital or voting rights. It will also have to give an open offer to minority shareholders post the SPA.

 “We are expecting clearances from the Reserve Bank of India to come through quickly and the deal will be closed this financial year,” Arunish Chawla, DIPAM Secretary, told reporters.

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Prem Watsa-led Fairfax Financial Holdings will also be expected to use the IDBI brand name and logo for a period of three years from signing the SPA.

Finance Minister Nirmala Sitharaman said it should not be considered a strategic disinvestment but a strategic restructuring as both LIC and the government will continue to remain invested in IDBI Bank.

Following the stake sale, LIC will continue to hold a 19% stake in the bank while the Centre will retain 15% of its equity in the bank. To continue to hold its housing loan portfolio through LIC Housing Finance, LIC will be expected to pare its stake to 15% in the next two years, and it will then be classified as a public shareholder in IDBI Bank.

While officials underlined that LIC and the Centre will continue to remain invested in IDBI Bank with a 30% stake, they will not hold board-level appointments in the private sector lender. “We do a strategic transaction with a clear mind. We will get off the board with a new promoter coming in. There will be no contingent liability on us,” Chawla said.

Officials also underlined that IDBI Bank employees need not worry about the change in management and the government and LIC will continue to remain investors. They also pointed out that IDBI Bank is a board-managed bank and is different from a public sector bank.

“Over the last one year, there have been continuous discussions with IDBI stakeholders and concerns of every group have been addressed,” they said.

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