FM Sitharaman calls IDBI Bank deal a milestone in India’s reform journey

Union Finance Minister Nirmala Sitharaman on Wednesday, October 14, called the Cabinet Committee on Economic Affairs’ (CCEA) approval of IDBI Bank’s strategic restructuring as a milestone in India’s reform journey, as the government moves ahead with the lender’s sale to Canada’s Fairfax Financial Holdings.

“India’s reform trajectory reaches another milestone today with CCEA’s approval of IDBI Bank’s strategic restructuring,” Sitharaman said.

“We are now enabling its next phase of growth through the infusion of Foreign Direct Investment (FDI) while retaining a minority stake,” she added.

The CCEA approved Fairfax Financial Holdings as the strategic buyer for a 60.72% stake in IDBI Bank for ₹52,878.08 crore. The transaction involves the sale of a 30.48% stake held by the Government of India and a 30.24% stake held by Life Insurance Corporation of India (LIC).

Once completed, the deal is set to become the largest foreign direct investment transaction in India’s financial services sector.

The Finance Minister said the restructuring would strengthen the banking ecosystem and help banking services surpass global benchmarks.

“It reinforces that India’s growth story is strong, economy is resilient, and the government’s commitment to reform is unwavering,” she said.

Government and LIC to retain 34% stake

Following the transaction, the government will retain a 15% stake in IDBI Bank, while LIC will hold 19%, taking their combined shareholding to 34%. However, management control will pass to the strategic investor, marking a significant change in the lender’s ownership structure.

Fairfax’s winning bid of ₹81 per share was above the independently determined benchmark valuation of ₹75.99 per share. An earlier round of bidding had failed after offers fell short of the then reserve price of ₹94.42 per share, prompting the government to seek fresh best-offer bids.

The transaction will also require regulatory clearances. Fairfax, which already holds around 40% in CSB Bank, will have to address Reserve Bank of India (RBI) restrictions on promoter control across multiple banks. The approved restructuring framework envisages a merger route within two years.

A long-pending strategic sale

The IDBI Bank stake sale follows a privatisation process that began in 2022 and involved a two-stage competitive bidding framework. Five entities submitted expressions of interest, four qualified for the next stage, and two eventually submitted technical and financial bids.

The government has said the restructuring is intended to bring growth capital into the banking system, support economic expansion and improve credit availability for micro, small and medium enterprises (MSMEs).

The government has also authorised the Alternative Mechanism to undertake future open-market sales of its residual 15% holding, subject to the applicable process. LIC will manage its remaining stake in accordance with regulatory requirements.

Other big-ticket strategic disinvestment deals

The reports suggest, the ₹52,878-crore IDBI Bank transaction is the biggest strategic disinvestment since the Tata Group’s acquisition of Air India in January 2022. The Air India deal was valued at an enterprise value of ₹18,000 crore, including cash consideration and debt taken over by the buyer.

In the banking sector, a notable recent transaction was Axis Bank’s acquisition of Citibank India’s consumer banking business for ₹11,603 crore, completed in March 2023. However, the IDBI Bank deal is different in nature, as it involves the transfer of management control of a bank to a foreign strategic investor, while the government and Life Insurance Corporation of India (LIC) retain minority stakes.

Read more: Why experts believe Fairfax's IDBI Bank deal could reshape the lender's future