Foreign funds or entities listed abroad can own 51 per cent or more in IDBI Bank, Department of Investment and Public Asset Management (DIPAM) said on Tuesday. The government has announced selling over 60 per cent of stake in IDBI Bank along with management control as part of strategic disinvestment.

In October, the government invited Expression of Interest (EoI) for selling stake in IDBI Bank. One of the queries raised by potential investor was “whether the consortium can solely consist of funds/investment vehicle incorporated outside India (i.e., non-residents) and therefore such nonresidents can own more than 51 per cent in NOFHC (Non-operative Financial Holding Company) or the investment vehicle (incorporated outside India)?”

Residency criteria

Responding to this, DIPAM said the residency requirement of the promoter, under the RBI’s “Guidelines for ‘on tap’ Licensing of Universal Banks in the Private Sector, 2016”, is in context of new/prospective banks. However, “as IDBI Bank is an existing banking company; hence, for the purposes of the transaction, the said residency criteria would not apply to a consortium consisting of funds/ investment vehicle incorporated outside India,” it said. This means foreign funds or entities listed outside India can have strategic stake holding in the company.

Though the bank is categorised as ‘Private Sector Bank’ with effect from January 21, 2019 after Life Insurance Corporation of India acquired majority stake, the government still owns 45.48 per cent of equity. LIC has 49.24 per cent. Now, the plan is that the government will sell 30.48 per cent and LIC will sell 30.24 per cent aggregating to 60.72 per cent of the equity share capital of IDBI Bank, along with transfer of management control in IDBI Bank.

In one query, it was said that being a global systemically important bank (GSIB), potential bidder has presence in India today through potential bidder’s majority ownership of a large diversified non-bank finance company and may have other future investments — directly or indirectly through group affiliate entities. The question was – Can the bidder continue to operate the Related NBFC uninterrupted?

In its response, DIPAM quoted “Guidelines for ‘on tap’ Licensing of Universal Banks in the Private Sector” and said it which mandates the requirement of an NOFHC in cases where the promoting entities/converting entities have other group entities or group entities are proposed to be established after the bank is incorporated. Guidelines made it clear that only those regulated financial sector entities in which the individual Promoter or group have significant influence or control will be held under the NOFHC.” As the requirement is to ring fence the bank from other activities of the Group, the establishment of NOFHC would be guided by said guidelines.

Another issue was about fate of Primary Dealer business. DIPAM said that there may not be any impact on the Primary Dealer business of the IDBI Bank.

EoI for IDBI Bank can be submitted till December 23.

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