Divestment push: RBI allows IDBI Bank bidders to own more than 40%

Govt and LIC look to sell 51-74% stake in the lender through strategic disinvestment

The Reserve Bank of India (RBI) is learnt to have accepted the Centre’s request for allowing non-financial institutions and non-regulated entities to own more than 40 per cent of IDBI Bank, as the Union government and Life Insurance Corporation (LIC) look to sell 51-74 per cent stake in the lender through the strategic divestment process.

Non-financial institutions and non-regulated entities, such as private equity firms, currently, can own only 10 per cent and 15 per cent, respectively, in banks, while regulated entities and public sector undertakings (PSU) are allowed to hold up to 40 per cent. The RBI allows the holding of a higher stake, over 40 per cent, on a case-to-case basis.

“The RBI and the Centre are on the same page regarding the conditions for the strategic divestment of IDBI Bank,” an official said. A clarification was sought from the central bank on the matter that many unregulated entities would want to participate in the divestment process, and pick up a higher stake. The RBI, stating its extant guidelines, has responded to the Centre that even though the limit of shareholding for non-regulated entities is capped at 15 per cent, they can acquire more than 40 per cent stake in a bank following the RBI’s nod.

The banking regulator has communicated that it shall allow non-regulated entities, on the Centre’s request, to own more than 40 per cent stake in IDBI Bank, the official said.

Divestment push

• Clarity was sought from RBI to allow non-regulated entities to buy over 40% in IDBI Bank, as against present 15% cap
• Stake sale up to 74% in the bank being considered to facilitate entry of foreign investors in line with FDI limit
• EoI to specify that bidders will be able to acquire over 51% in IDBI Bank if they meet eligibility criteria

This clarity was needed before the Department of Investment and Public Asset Management (DIPAM) invited bids to sell over 51 per cent (and up to 74 per cent) stake of the Centre and LIC in IDBI Bank. The Centre owns 45.48 per cent in IDBI Bank, while LIC holds a 49.24 per cent stake.

The Alternative Mechanism on strategic disinvestment, which includes Finance Minister Nirmala Sitharaman and Road, Transport and Highways Minister Nitin Gadkari, may soon finalise the exact quantum of shareholding to be sold in the lender.

The central bank’s nod was crucial to obviate a situation where an entity meeting the stringent eligibility criteria to buy a stake in IDBI Bank would be disqualified based on the present bank shareholding threshold fixed by the RBI.

Queries sent to the RBI spokesperson did not elicit a response.

The move to sell up to 74 per cent stake in IDBI Bank shall facilitate the entry of foreign investors, in line with the Centre’s foreign direct investment (FDI) limit of 74 per cent in private banks. Even as the government holds over 45 per cent stake in IDBI Bank, the lender is classified as a private bank since its promoter is LIC.

The government will soon float an expression of interest (EoI) for sale of its stake in IDBI Bank. The EoI will specify that bidders can acquire over 51 per cent in the bank if they meet the eligibility criteria, the official quoted above said.