The Indian government has been trying to hand over public sector banks to private hands for a long time. Now good news has come in the case of IDBI Bank. The bidding process may start soon, through which the government can raise huge amount by selling its major stake. This step is part of strengthening the economy and bringing new energy to the banking sector.
Bank’s background and reform story
IDBI Bank is an old government bank based in Mumbai, which was once stuck in a huge debt crisis. Years ago its NPAs (non-performing assets) were at very high levels, making the bank steep in losses. But there have been major improvements in the last few years. The bank did wonders due to the government’s capital support, strict recovery drive and changes in management. Now it is consistently profitable. Experts believe that such reforms have increased the value of the bank, which is attracting investors.
The bank’s market value now exceeds Rs 1 trillion (about $11.6 billion), data shows. Shares have increased by about 30% this year. “The bank has now become an institution with strong fundamentals, which makes it perfect timing for privatisation,” says the financial analyst.
What is the share of government and LIC?
The central government holds more than 45.5% shares in IDBI, while LIC holds about 49.2%. Overall government control is around 94-95%. The plan is that the government will sell its 30.48% stake and LIC 30.24%. With this, the management control of the bank will completely go into private hands. At the current market price, this deal could be worth around Rs 64 thousand crore ($7.1 billion).
This amount is important for the government because it will reduce fiscal deficit and increase investment in infrastructure projects. Economists believe that such disinvestment improves the efficiency of the public sector and saves taxpayers’ money.
When and how will the bidding process begin?
According to sources, a government agency can formally start the bidding this month itself. Talks with potential buyers are in advanced stages. In the first phase, those showing interest have to pass the fit and proper criteria of RBI. After this the financial bid will come.
The Minister of State for Finance told in Parliament that the selected bidders are currently doing due diligence (detailed investigation). The entire process is expected to be finished by March 2026, although regulatory approvals may cause delays. Earlier too, deadlines had been missed due to such obstacles.
Who are the main contenders?
Three big names are emerging:
- Kotak Mahindra Bank: This bank led by Uday Kotak is considered to be at the forefront. Jefferies analysts say this acquisition could make Kotak twice as big, but paying a higher price will put pressure on capital.
- Fairfax Financial: Canadian investor Prem Vatsa’s company, which has invested in many banks in India like CSB.
- Emirates NBD: A large bank in the Middle East, which recently bought a stake in RBL Bank.
Experts are of the opinion that Kotak’s strong domestic presence may give it an edge, but foreign players can bring in new technology and global networks.
Why does this deal matter?
This will be the first complete privatization of a big government bank after decades. This will increase competition in the banking sector, provide better service to customers and bring innovation. The government will get revenue, which will be used for economic development. But there are challenges too – like staff jobs and rural access. Still, overall this is a big step towards reforms.
The government was asking for a valuation of Rs 64 thousand crore in 2022, which has now been exceeded due to the share increase. The winner could be announced by March next year, but final approvals will take time.
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