Procedural delays likely in IDBI Bank stake sale; bids expected in Q3

Procedural delays likely in IDBI Bank stake sale; bids expected in Q3

August 16, 2023

The strategic sale of government and state-owned Life Insurance Corporation (LIC) of India stakes in IDBI Bank might encounter procedural delays, potentially pushing the timeline for expected financial bids to the third quarter of the current financial year (2023-24, or FY24), according to sources familiar with the development.

Financial bids constitute the second significant step in the divestment process, following expressions of interest (EoIs) from potential bidders.

In this phase, bidders are required to quote transactional fee as a percentage of the divestment proceeds, which are then added to the government’s kitty after completion of the transaction.

The Reserve Bank of India (RBI), responsible for the “fit-and-proper assessment” of shortlisted potential bidders, has yet to grant its approval.

This delay is anticipated to extend the time needed to invite financial bids.

“Initially, we had aimed to invite bids by September, but due to procedural delays, more time is needed,” revealed an official with knowledge of the process.

The cautious approach taken by the banking regulator is understandable, given the involvement of a bank, the official noted.

The IDBI stake sale holds significant importance for the government’s target to achieve Rs 51,000 crore in FY24.

The deal is projected to generate Rs 15,000–16,000 crore, factoring in the prevailing stock market conditions.

The regulator is reported to be examining various aspects, including the bank’s capital adequacy, after-acquisition concerns, the credibility of potential bidders based on their track record, their financial stability following additional capital infusion in the bank, and particularly, any potential conflicts of interest.

“Assessing certain aspects, such as conflicts of interest, requires substantial information from multiple sources,” noted the official cited above.

It was added that both the ministry and banks are working closely to ensure all processes are concluded within the designated timeline.

The Department of Investment and Public Asset Management, responsible for managing government equity, will check antecedents once it receives the green light from the RBI, subsequently enabling the invitation of financial bids.

It’s important to highlight that access to the bank’s data room will be granted to qualified bidders after vetting by both the RBI and the home ministry.

Industry experts maintain optimism about the IDBI stake sale occurring this year.

Once financial bids are submitted, an estimated two to three months will be required to finalise the remaining processes, including share transfers and the open offer from the winning bidder.

“To mitigate delays during the transaction stage, the government may consider conducting an initial assessment of potential companies before adding them to the divestment list.

“This assessment should encompass potential value drivers, whether asset- or business-related, while safeguarding the entity’s rights over these value drivers. Additionally, all pertinent financial, legal, and other documentation necessary for potential due diligence should be identified,” says Arindam Guha, an independent expert in public policy and governance matters.

On January 7, the Centre received numerous EoIs from both domestic and foreign investors for the 60.72 per cent stake in IDBI Bank.

The successful bidder will secure this stake alongside management control. The offer comprises 30.48 per cent from the government and 30.24 per cent from LIC, the current promoter.

Regulators have extended the requisite regulatory forbearance to sweeten the deal for potential bidders.

Foreign banks, funds, and investment vehicles incorporated outside India were granted permission to participate in the bid for IDBI Bank.

  • Early this year, the Centre received multiple EoIs from domestic and foreign investors for 60.72% stake in IDBI Bank
  • The offer comprises 30.48% from the government and 30.24% from LIC, the current promoter
  • IDBI’s stake sale is crucial to meeting the FY24 divestment target of Rs 51,000 crore
  • RBI is undertaking a fit-and-proper assessment of bidders, assessing bidders’ conflicts of interest and financial viability
  • The government intends to complete the sale transaction in financial year 2023-24

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