The Cabinet Committee on Economic Affairs (CCEA) on Wednesday gave its in-principle approval for strategic disinvestment along with the transfer of the management control in the IDBI Bank Ltd.
“The extent of respective shareholding to be divested by the Central government and the LIC would be decided at the time of structuring of transaction in consultation with the RBI,” an official release said.
The Central government and Life Insurance Corporation (LIC) together own more than 94 per cent of equity of the IDBI bank. While the Central government owns 45.48 per cent stake, the shareholding of LIC in the IDBI Bank is 49.24 per cent. LIC is currently the promoter of the IDBI bank with management control, while the Central government is the co-promoter.
Capital market observers noted that the timing of the CCEA decision was quite perfect with the IDBI bank now coming into black after a gap of five years. For the financial year ended March 31, 2021, IDBI Bank has reported a full year standalone net profit of ₹1,359 crore against net loss of ₹12,887 crore in the previous year. The bank had also come out of the RBI’s Prompt Corrective Action (PCA) framework on March 10. “This could boost the valuation of the lender when the government goes in for the strategic disinvestment,” they said.
Speaking to BusinessLine soon after the announcement of the CCEA decision, Rakesh Sharma, Managing Director & CEO, IDBI Bank said, “The bank has seen a turnaround and balance sheet has improved. It is for the owners – the government and the LIC – to decide on the quantum of stake sale, timing and price etc. Now that bank has turned around, it may help them in attracting investors at right valuation.”
It is still not clear whether the management control and majority equity holding will pass on to a foreign bank or any domestic acquirer. One thing is for sure is that the LIC would tag along with the Central government, which is looking to exit, when the transaction is put through – so that the valuation is maximised for both the selling shareholders.
“It is expected that the strategic buyer will infuse funds, new technology and best management practices for optimal development of business potential and growth of the IDBI bank,” the release added.