The centre, on June 22, kick-started the process of shedding its stake in IDBI Bank Ltd, by issuing Request for Proposals (RFP) to hire transaction and legal advisors to advice on the sale process.
However, these RFPs have deviated from previous transactions in a very crucial way. In previous divestment RFPs, whether to hire advisors or seek bids from prospective investors, it has been clearly mentioned how much stake in the relevant company the government would like to offload.
Not in the case of IDBI Bank though. The government has not yet finalized how much stake to sell and will do so in consultation with the Reserve Bank of India, LIC Ltd, and the appointed transaction advisor, a senior government official told Moneycontrol.
The stake offloaded could be anything between 26 percent (the minimum required to transfer management control) and the centre's entire stake, which is currently at 45.5 percent, the official said.
"In case of previous RFPs, they were for non-financial state-owned companies. The cabinet would decide how much stake to sell. But in case of a bank like IDBI, the regulator is involved (RBI), and so is the other major shareholder (LIC),"the person said.
"We have had some initial discussions. Detailed discussions on how much stake to sell will be taken after the transaction advisor is appointed as they will also be part of these talks. The stake to be sold could be anything between minimum management control, or the entire shareholding," the person said.
At present, IDBI Bank is classified as a private sector bank by the RBI with government shareholding at 45.5 percent, Life Insurance Corporation of India (LIC) shareholding at 49.24 percent and the Non-promoter shareholding at 5.29 percent.
The Department of Investment and Public Asset Management, in the RFPs issued, said that the bids by interested investment banks, financial institutions, consulting firms and law firms should be submitted by July 13.
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 Cabinet Committee on Economic Affairs had cleared the 'strategic divestment' of IDBI
in early-May. LIC will reduce its shareholding in IDBI Bank in parallel with the central government, and with an intent to relinquish management control.
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.