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CCEA clears 'strategic divestment' of IDBI Bank

The centre and LIC together own more than 94 percent of equity of IDBI Bank, with the centre owning 45.48 percent and LIC owning 49.24 percent. LIC is currently the promoter of IDBI Bank with management control and GoI is the co-promoter.

May 05, 2021 / 07:36 PM IST
IDBI Bank

IDBI Bank

The Cabinet Committee on Economic Affairs (CCEA), on May 5, granted approval for the long pending 'strategic disinvestment' of IDBI Bank Ltd, an  official statement said.

The extent of respective shareholding to be divested by government and LIC Ltd shall be decided at the time of structuring of transaction in consultation with the Reserve Bank of India, the statement added.

The centre and LIC together own more than 94 percent of equity of IDBI Bank, with the centre owning 45.48 percent and LIC owning 49.24 percent.  LIC is currently the promoter of IDBI Bank with management control and GoI is the co-promoter.

A top government official told Moneycontrol that LIC and the centre will shed substantial stake in IDBI Bank after discussions with RBI. The method of selling the majority stake in the bank to a private buyer will also be decided after these consultations.

In a year when the government is openly using the word 'privatization', the official statement on the CCEA clearance used the older term 'strategic disinvestment'. Technically, 'strategic disinvestment' would also include sale to another state-owned entity.

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"We will not sell to State Bank or any other public sector bank. IDBI will be sold to a private bank. The word 'strategic sector' has been used because IDBI is classified as a private sector bank by the RBI. You cannot 'privatize' a bank which is already considered private," the official said.

LIC completed the acquisition of controlling stake in IDBI Bank in January 2019 making it the majority shareholder of the bank. Subsequent to the enhancement of equity stake by LIC, RBI clarified that IDBI Bank stands re-categorized as a private sector bank.

The CCEA statement said that LIC’s Board has passed a resolution to the effect that LIC may reduce its shareholding in IDBI Bank Ltd. through divesting its stake along with strategic stake sale envisaged by the Govt. with an intent to relinquish management control and by taking into consideration price, market outlook, statutory stipulation and interest of policy holders.

"It is expected that strategic buyer will infuse funds, new technology and best management practices for optimal development of business potential and growth of IDBI Bank Ltd. and shall generate more business without any dependence on LIC and Government assistance/funds," the statement said.

"Resources through strategic disinvestment of Govt. equity from the transaction would be used to finance developmental programmes of the Government benefiting the citizens," it said.

For 2021-22, the centre has set itself a divestment target of Rs 1.75 lakh crore, on back of the planned privatization of Air India, Bharat Petroleum, Shipping Corp, Concor, two state-owned banks (yet to be decided) and the initial public offering of LIC Ltd.

The privatization of IDBI Bank is a long-pending decision by the Narendra Modi government. A majority stake was sold to LIC, but an eventual sale to a private sector entity has been on the cards.
Arup Roychoudhury
first published: May 5, 2021 04:31 pm

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