IDBI Stake Sale: Likely offer conditions as stage is set to invite EoIs

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The stage may be set for the next step in the sale of shares in IDBI Bank: inviting expressions of interest (EoIs) from potential bidders.

A meeting of the Core Group of Secretaries on Disinvestment has been scheduled for October 3 under the chairmanship of the Cabinet Secretary, people familiar with the plans said.

More than 16 months have passed since the Cabinet Committee on Economic Affairs granted in-principle approval for the strategic sale of shares and transfer of management control in IDBI Bank.

The Central government holds 45.5 percent in IDBI Bank and Life Insurance Corporation of India owns 49.24 percent.

Since the CCEA approval, several meetings have been held within the government and between the government and the Reserve Bank of India, the Securities and Exchange Board of India and the Insurance Regulatory and Development Authority of India over various issues related to the stake sale.

Here are the modalities of the strategic sale in IDBI Bank and questions that may be addressed in the call for expressions of interest, according to people involved in the process.

A total of 60.72 percent of IDBI Bank’s equity is likely to be offered to a strategic investor. The government may sell a 30.48 percent stake and LIC may offer 30.24 percent. If this is the case, the government will be left with 15 percent and LIC with 19 percent after disinvestment.

When the RBI allowed LIC to acquire a majority stake in IDBI Bank in 2018, it had said that either IDBI Bank or LIC Housing Finance will have to stop its housing finance business within five years. Housing finance can be carried out by only one entity, the RBI said.

This is a major regulatory concern – how can LIC be the promoter of two housing finance businesses after the stake sale in IDBI Bank? LIC is currently the promoter of IDBI Bank with management control and the government is the co-promoter.

One option being considered is to ask SEBI to reclassify the status of the government and LIC as public shareholders instead of promoters. This can be done under SEBI’s Listing Obligations and Disclosure Requirements (LODR) guidelines, the people said. The issue has been discussed at various levels within the government and with SEBI too.

As of now, there are no indications of a dilution in norms restricting corporate houses from acquiring stakes in banks. So corporate houses and nonbanking finance companies backed by corporate houses won’t be eligible to bid for a stake in IDBI Bank.

Yes. The fit and proper criteria are likely to be enforced strictly. Provisional assessment of these criteria will be done by the RBI and security clearance may need to be obtained from the government. Only then will data room access be provided to potential bidders.

The government is said to have discussed this issue with the RBI. The lock-in period for the successful bidder will be as per the RBI’s directions. The proposal is that about 40 percent of the total paid-up equity capital is likely to have a lock-in period of five years from the date of acquisition, the people said.

The government may allow bidding by a consortium. However, the maximum number of investors in a consortium may be set at four, the people said.

All matters pertaining to the sale of IDBI Bank shares are still at the discussion stage, the people aware of the plans said. The invitation calling for expressions of interest is yet to get approval from the alternative mechanism and the core group of secretaries on disinvestment.

The alternative mechanism consists of a panel of three ministers that will decide on the terms and conditions of the sale from the stage of inviting the expressions of interest to calling for financial bids.