Banking sector: IDBI Bank privatisation, IBC reforms may top next government’s agenda

The Election Commission of India has declared results for all Lok Sabha constituencies, with the BJP winning 240 of the 543 seats and the Congress 99.

The next government is likely to implement critical reforms in the banking sector including the completion of the stake sale in IDBI Bank and changes in the Insolvency and Bankruptcy Code (IBC), bankers said.

“Privatisation of IDBI Bank has been going on for a long time now. Maybe in the financial year 2024-25 we would see the process nearing completion,” said a senior public sector banker.

Chandan Sinha, a former executive director of the Reserve Bank of India, said IDBI Bank’s sale could be the next government’s focus in FY25.

Additionally, bankers said that reforms to strengthen the IBC could be on the agenda of the next government.

“IBC has helped in the recovery process for banks but there is space for more reforms,” said a senior private sector banker.

Also read: Lok Sabha Elections 2024: Know the date and time of exit polls

IDBI stake sale

The government expects to complete the strategic sale of IDBI Bank in the next financial year, Department of Investment and Public Asset Management (DIPAM) secretary Tuhin Kanta Pandey told the media on February 4. He added that the process is on, and once regulatory clearances are obtained, financial bids will be invited.

The government and Life Insurance Corporation of India are selling an almost 61 percent stake in IDBI Bank. They invited bids from buyers in October 2022. In January 2023, DIPAM said it received several expressions of interest for the IDBI Bank stake on offer.

Bidders have to get two sets of approvals - one from the home ministry for security clearance and the other from the RBI to meet the fit and proper criteria.

Path for IBC

In 2016, parliament passed the IBC, which was termed as a much-needed and long-awaited reform for the insolvency process in the country. The code aimed to expedite and simplify bankruptcy proceedings alongside facilitating fair negotiations between borrowers and creditors.

Timely resolution of stressed assets that could ensure maximum recovery was a key element of the code. IBC helped in creating a mechanism to resolve the deadlock between stressed borrowers and lenders, made defaulting companies more conscious about debt, and gave lenders a tool to maximize their recoveries.

However, the resolution process has been slow due to factors such as litigation, dissenting creditors and poor infrastructure.

Recoveries through IBC in FY24 were 32 percent, and financial creditors lost 68 percent of their claims. The time taken to reach resolution is 863 days instead of the stated 330 days.

Industry voices have highlighted concerns over IBC that must be improved. The senior private banker said expediting of cases under IBC should be a key change.

Also read: Budget 2024-25: 10 years of Modi Budgets: IBC a winner, bank privatisation still a work in progress

Finance minister Nirmala Sitharaman said on February 2 the government will continue with key reforms such as IBC and professionalisation of public sector banks.

In January, RBI deputy governor J Swaminathan pitched for reforms in the insolvency process, especially cases involving corporate groups and financial services providers. He said there was a need to look into the resolution strategy of conglomerates and ways to address it.

Similarly, there was the unfinished agenda of a comprehensive resolution framework for financial service providers such as banks, non-banking financial companies and insurance companies, Swaminathan said.

“From a reform agenda perspective, there are also some aspects of IBC that merit further legislative consideration,” the deputy governor had said.

India's parliamentary elections will conclude on June 1 and counting of votes starts on June 4.