Cabinet approves sale of 60.72% stake in IDBI Bank to Canada's Fairfax Financial arm
The Centre and LIC will sell a combined 60.72 per cent in IDBI Bank to a subsidiary of Fairfax Financial Holdings, in what is described as the biggest deal in the country's banking sector.
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The Union Cabinet has approved the biggest deal the country's banking sector has seen so far. Under the long-discussed disinvestment of IDBI Bank, the Central government and the Life Insurance Corporation of India (LIC) will sell a large part of their holdings to a subsidiary of Canada's Fairfax Financial Holdings.
The Cabinet Committee on Economic Affairs (CCEA), which met under Prime Minister Narendra Modi, gave formal approval to the deal.
On the value of the transaction, the whole deal is expected to be worth about Rs 52,878.08 crore, according to available information. Announcing the decision, Union Minister Ashwini Vaishnaw said it would be the largest foreign direct investment (FDI) ever in India's financial sector.
In this strategic agreement, the Centre will sell 30.48 per cent of its stake in the bank. LIC will also sell part of its holding. In all, 60.72 per cent ownership of the bank will be handed over to the Canadian company.
Even after such a large stake is sold, the bank will not pass entirely out of government hands. After the deal, the Centre will retain 15 per cent and LIC 19 per cent, so the government and LIC together will keep 34 per cent in the bank.
The process of selling IDBI Bank began in 2012, but it was delayed considerably by various regulatory hurdles, legal proceedings and flaws in the bidding process. The process had been halted some time ago, but with the obstacles now cleared, it has been given final approval.
To complete the deal, the buyer will have to meet all the rules and legal requirements of the Reserve Bank of India (RBI). Fairfax will have to establish its eligibility before the RBI and present a roadmap in line with the central bank's conditions. The news had a direct effect on the stock market, with IDBI Bank shares rising sharply as soon as it emerged.
IDBI Bank was set up in 1964 as a development financial institution (DFI) and became a commercial bank in 2004. Between 2010 and the 2020s, the bank faced a major financial crisis because of non-performing assets (NPAs) and heavy losses. To stabilise the banking system then, the government and LIC had to put in about Rs 25,000 crore of capital in the bank. The bank is now expected to gain greater business strength from this new phase of privatisation.
