IDBI Bank shares jump 13%, CSB Bank also gains 6% after Fairfax approval; here's why

IDBI Bank Ltd shares jumped 13 per cent in Wednesday's trade after the cabinet approved buying of stake in the lender by Fairfax for Rs 52,878 crore, Bloomberg reported quoting Finance Minister Nirmala Sitharaman as saying in New Delhi. CSB Bank Ltd also gained as Fairfax is asked to merge the lender with IDBI Bank within two years.

To recall, Fairfax, led by investor Prem Watsa, had submitted a $5 billion bid for IDBI Bank and reportedly offered to fully divest its stake in CSB Bank as part of the process. Every prospective bidder had to clear the RBI’s “fit and proper” scrutiny before submitting bids.

Following the development, IDBI Bank shares climbed 13 per cent to Rs 93.62 apiece. As per Bloomberg, Fairfax will pay Rs 81 per share for IDBI Bank. Eventually, Firfax will get 60.72 per cent stake in IDBI Bank. It will also make open offer for additional IDBI Bank shares.

CSB Bank shares also rose 5.7 per cent to Rs 326. LIC was trading flat at Rs 394 apiece. As per earlier reports, Fairfax had extended a commitment that IDBI Bank will be its only investment in the banking space, fully divesting its 40 per cent stake in CSB Bank upon the acquisition of IDBI Bank. This would have resulted in complying with RBI’s norms which mandate that a promoter cannot hold two banking licences. That overhang for CSB Bank has bee removed now.

The transaction involves the sale of a 30.48 per cent stake held by the government of India and a 30.24 per cent stake held by LIC. The government (15 per cent) and LIC (19 per cent) will retain 34 per cent stake in the restructured entity.

IDBI Bank was categorised as a private sector bank in January 2019. The government of India’s holding in the lender has been below 51 per cent since 2019. Between 2010 and 2020, around Rs 25,000 crore capital was infused by the government in the lender.