As the divestment of IDBI Bank moves to the next phase and an asset valuer is set to be appointed in a few weeks, a top-of-the-mind question for potential bidders, people in the banking fraternity and divesting shareholders – namely the Government of India and Life Insurance Corporation of India – is the Reserve Bank of India’s comfort level in taking certain exceptions to ensure closure of the divestment process.
According to highly placed sources, two investors – Kotak Mahindra Bank and Prem Watsa-led Fairfax India Holding (which owns CSB Bank) – who have submitted their expressions of interest, have sought a structure whereby existing banking entities held by them would be retained alongside IDBI Bank. Such a structure has been sought for at least three years post the acquisition of IDBI Bank, after which they would merge with the respective banking outfits.
The exception is being sought because if IDBI Bank should be merged with their existing banks, government and LIC, which would continue to hold 30 per cent stake in IDBI Bank after the divestment, may become a major shareholder of the merged entity.
The extant banking law does not permit a bank to invest in another bank and/ or a promoter to be invested in two banks at the same time. This implies that Kotak Mahindra Bank’s request to hold IDBI Bank as an associate company or Fairfax’s demand to hold the bank alongside CSB Bank, would not be an acceptable practice under the current framework.
RBI believes that taking exception with IDBI Bank divestment could set a precedent.
“There could be more divestments of state-owned banks, which could come for deliberations in future, and if an exception is made with IDBI Bank, it may become an example to quote for such divestment proposals,” said a senior executive, aware of the matter. That said, in 2018, the RBI permitted Fairfax India Holdings to acquire 50 per cent stake in the Catholic Syrian Bank (now CSB Bank) as against the permitted promoter holding of 26 per cent.
The thought process at the government seems to be slightly different. “Large transactions such as this (IDBI Bank divestment) may not sail through if a different approach is not followed. Bidders satisfying the ‘fit and proper’ criteria of RBI should be the paramount aspect,” said another senior official, who didn’t want to be quoted.
E-mails sent to RBI and DIPAM seeking their responses remained unanswered till press time.
Also, it is gathered that the government is keen on concluding the IDBI Bank divestment this fiscal as planned. Likely to fetch Rs 22,500 crore in the process, the transaction would be critical to boost FY23’s planned divestment target of Rs 51,200 crore. As per DIPAM’s website, total divestment receipts for the current fiscal stood at Rs 5,600.93 crore.