IDBI Bank Up for Sale: Government to Divest Stake—Who Will Be the New Owner?
The central government has approved the sale of a significant portion of its stake in IDBI Bank. This move has sparked intense economic and political debate across the country.
The central government has cleared the sale of a 60.72% stake in IDBI Bank. The Cabinet Committee on Economic Affairs (CCEA), chaired by Prime Minister Narendra Modi, has given the green light to this decision. The issue has heated up the political landscape, with the ruling party and the opposition now at loggerheads.
Who is the buyer?
'M/s 10955230 Canada Inc.'—a subsidiary of the Canadian-based conglomerate Fairfax Financial Holdings—is set to acquire the 60.72% stake from the government for ₹52,878 crore, at a price of ₹81 per share.
This 60.72% stake comprises 30.48% held by the Government of India and 30.24% held by the Life Insurance Corporation (LIC). Following this divestment, the government will retain a 15% stake in the bank, while LIC will hold 19%—meaning the two will collectively retain a 34% stake.
Notably, the founder and CEO of Fairfax is Prem Watsa, who is of Indian origin and is often referred to as the "Warren Buffett of Canada." Born in Hyderabad, he earned a B.Tech degree in Chemical Engineering from IIT Madras. He moved to Canada in the 1970s and eventually settled there. Largest-Ever FDI in the Country
Following approval from the Union Cabinet, this deal involving IDBI Bank is being regarded as the largest-ever Foreign Direct Investment (FDI) in India's economic history. It is noted that, after the sale of Air India, this divestment of IDBI Bank represents the government's largest and most significant sale to date. Never before has any entity invested such a substantial sum into an Indian bank or financial institution.
In 2022, the government sold Air India to the Tata Group for ₹18,000 crore. In this context, the IDBI Bank transaction is considered the most significant successful strategic deal, wherein the government is selling its majority stake to a private entity.
Was IDBI Bank entirely a government-owned bank?
In 2019, the Reserve Bank of India (RBI) reclassified IDBI Bank as a private-sector bank after the Life Insurance Corporation of India (LIC) acquired a 51% stake in it. However, since both the central government and LIC belong to the public sector, it was effectively still perceived as a government bank. This has sparked a political controversy, with the opposition viewing it as yet another instance of the government selling off a public-sector bank.
Politics Heats Up Over the Bank Deal
Samajwadi Party chief Akhilesh Yadav has characterized this bank deal as the BJP’s "season-end sale" policy, alleging that the government is preparing to sell off everything. Retorting to this, Union Finance Minister Nirmala Sitharaman stated that during the UPA regime, the Congress and its allies had left the bank completely bankrupt through "phone banking" and the irregular distribution of loans. She asserted that the current government is now restructuring the bank by addressing the legacy of bad loans (NPAs) and the financial distress inherited from that period.
Government Sets Two-Year Deadline
Following the recent deal, Canadian billionaire Prem Watsa’s Fairfax Financial Holdings now holds an approximately 61% stake in IDBI Bank. Similarly, the group also holds a 40% stake in Kerala-based CSB Bank. Since Prem Watsa owns both entities, he faces a conflict with RBI regulations, which prohibit any single group or promoter from owning two separate commercial banks in India.
Consequently, the Fairfax Group is left with two options: either merge IDBI Bank with CSB Bank or divest its stake in one of them. The government has granted Fairfax a two-year deadline to make a decision on this matter.
