Fairfax likely frontrunner for IDBI Bank stake acquisition

Kotak Mahindra Bank may be reconsidering its pursuit of IDBI Bank at this time

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After months of delay, the divestment of IDBI Bank may advance to the next stage, with highly placed sources indicating that the Reserve Bank of India has granted the necessary approval.

The sources indicated that Fairfax India Holdings, one of the three bidders for IDBI Bank, has likely passed RBI’s rigorous ‘fit and proper’ test, advancing to the next stage. The fate of the other two bidders, cited in media reports, is unclear. Fairfax is led by Indian-born Canadian billionaire Prem Watsa.

According to media reports, Fairfax India Holdings, NBD Emirates, and Kotak Mahindra Bank have expressed interest in acquiring a majority stake in IDBI Bank. Sources said NBD Emirates has likely cleared the RBI's fit and proper screening. While Kotak Mahindra Bank may have also passed RBI's scrutiny, sources indicated the bank is not keen on pursuing the acquisition. "The deal structure Kotak envisaged may not have been okay for the regulator," said a person familiar with the matter.

Emails sent to the Reserve Bank of India and Fairfax seeking comments on the matter remained unanswered till publishing the article.

Earlier today, CNBC TV18 reported that RBI’s “fit and proper” nod may have come through for IDBI Bank divestment, and due diligence would start next month.

Deal structure

Fairfax, the promoter of CSB Bank (formerly Catholic Syrian Bank, acquired in 2018), is said to have given the government an undertaking that IDBI Bank will be the surviving entity should the deal go through. This commitment from the Canadian investor may have placed it in an advantageous position over the other investors.

While the exact modality of the transaction isn’t clear yet, the sources cited say that Fairfax may have predominantly offered a cash deal to acquire the combined 60.7 percent stake offered by the government and Life Insurance Corporation of India. However, given that CSB Bank (market cap of Rs 5,690 crore) is a listed entity and may be merged with IDBI Bank post-acquisition, there could be an element of share swap involved.

Employee protection

The sources also said that Fairfax has committed to the government that the existing management team and staff of IDBI Bank will be retained in their existing capacities for a minimum of three years post-acquisition. Their compensation and perks are unlikely to be affected due to the acquisition for a minimum of three years. “This comfort has been communicated to the employees,” said a person aware of the matter.

The divestment of IDBI Bank began in October 2022, with the government offering to sell a 30.48 percent stake and the Life Insurance Corporation of India (LIC) putting a 30.24 percent stake on the block. Following the divestment, the government and LIC will hold 15 percent and 19 percent stakes in the bank, respectively.