Fairfax to buy 60.72% of IDBI Bank for Rs 52,878 crore after cabinet approval

IDBI Bank shares fell 7% after the approval, as the Rs 81 a share price was more than 10% below the previous close of Rs 90.44, Moneycontrol reported. The sale covers 30.48% held by the Government of India and 30.24% held by Life Insurance Corporation of India, the Finance Ministry said. Fairfax's vehicle, 10955230 Canada Inc., will pay Rs 52,878 crore. The government said the restructuring is intended to bring growth capital into the banking system and improve credit availability for micro, small and medium enterprises.

After the sale, the government will retain 15% and LIC 19%, taking their combined holding to 34% from about 94.72%, Fortune India reported. The government's share of the proceeds is expected to be about Rs 26,000 crore, Forbes India reported. The government and LIC will not have board seats after the transaction, CNBC-TV18 reported. The Finance Ministry said the CCEA authorised the Alternative Mechanism to sell the government's residual 15% through the open market. LIC will manage its 19% under its own procedures and regulatory requirements.

How the second round was priced

The first round failed after bids fell short of a Rs 94.42 a share reserve price, CNBC-TV18 reported. The government then sought fresh best offers. For the second round, the Finance Ministry said there was no predetermined benchmark; bidders submitted confidential offers and two independent valuation agencies assessed the bank using market multiples of listed public sector banks and an asset valuation method. Their average, Rs 75.99 a share, was used to judge the bids. The winning Rs 81 bid was above that benchmark, the ministry said.

Conditions and next steps

The transaction is not complete. The successful bidder must present its credentials to the Reserve Bank of India under the Fit and Proper assessment and submit a roadmap for regulatory compliance, the Finance Ministry said. DIPAM Secretary Arunish Chawla said the deal will be completed before the end of the current fiscal, Rediff reported.

Fairfax must make an open offer to minority shareholders under market regulations. It also has to resolve its 40% stake in CSB Bank, either by merging CSB with IDBI Bank or exiting the holding within two years, because RBI rules bar an entity from owning and operating two separate banks. A government official said Fairfax will cut its stake to 26% over a 15-year glide path worked out with the RBI, Business Standard reported. LIC will reduce its post-transaction stake from 19% to 15% over two years, the same official said.

Employee opposition

The United Forum of IDBI Officers and Employees demanded an immediate halt to the sale and a parliamentary review, PTI reported. Forum convenor Devidas Tuljapurkar said the transaction may undervalue IDBI's properties, institutional strength, customer profile and profit earning capacity. IDBI Bank unions called a strike on 2 and 3 November, Urban Acres reported. Surav Kumar, president of the IDBI Bank Officers Association, told PTI Videos there was no reason for the sale, especially to a foreign player.

Two senior government officials told Business Standard the government had held discussions with all IDBI Bank stakeholders and addressed employee concerns. Service conditions would remain unchanged and pension benefits were fully funded, one official said.