The Central Government wanted to privatise IDBI Bank, which means selling its ownership to private investors. The plan was to complete this process in the financial year 2025–26, but now it may not happen this year.
Privatisation may stop as the government had set a minimum price (reserve price) for selling its stake in the bank. However, the financial offers from buyers were lower than this price, so the government may cancel or delay the deal. The government and Life Insurance Corporation of India together planned to sell 60.7% stake in IDBI Bank. If the sale happened, the government could have received more than ₹30,000 crore.
Who wanted to buy the bank?
The two main bidders for the privatisation of IDBI Bank were Fairfax Financial Holdings & Emirates NBD. But both already have large investments in Indian banks:
Fairfax Financial Holdings – is a Canada based investment company led by businessman Prem Watsa. The company had already invested a large amount of money in India, especially in the banking sector, which means it already has a strong presence in the country’s financial industry.
Fairfax currently owns about 40% stake in CSB Bank, making it one of the major shareholders of the bank. This means Fairfax has significant influence in the bank’s ownership and decisions.
Emirates NBD – is a major banking group based in Dubai. The bank is planning to acquire a 60% stake in RBL Bank. The proposed deal is valued at about ₹27,000 crore.The acquisition is moving forward after approval from the Competition Commission of India.
Why investors were hesitant?
Investors had several concerns regarding the privatisation of IDBI Bank:
High reserve price: Many investors felt that the minimum price set by the government for selling the bank was too high, which made the deal less attractive for potential buyers.
Less competition in bidding: Kotak Mahindra Bank, which was initially expected to be a strong bidder, did not participate in the final bidding process. Because of this, the number of competitors reduced, affecting the bidding process.
Very low public shareholding: The Government of India and Life Insurance Corporation of India together own about 94.7% of the bank. Since only a small portion of shares is available in the stock market, it becomes difficult for investors to properly determine the bank’s true market value.
Challenges in running a former government bank: Managing a bank that was earlier run by the government can be complicated because of old systems, strong employee unions, and traditional government-style working methods.
Global economic uncertainty: Due to uncertain global economic conditions, many investors are being more cautious about making large investments.
After a recent correction (price fall) in the market, the bank’s shares are now trading at about 1.5 times their book value. In the last one month, the share price has fallen by around 30%, meaning investors sold the stock and its price dropped. But if we look at a longer period (one year), the stock is still about 6% higher than where it was last year.
Book value means the actual value of the bank based on its assets and liabilities. So investors are paying about 1.5 times the bank’s real accounting value for the stock.
