IDBI keeps option open on bank strategic stake sale

Industrial Development Bank of India (IDBI) is keeping its options open of selling its stake in IDBI Bank even as the government is looking at the merger of IDBI and its subsidiary IDBI Bank.

A slew of strategic investors and a couple of foreign banks have been in talks with IDBI to buy out its stake in the bank.

IDBI holds 56.19 per cent stake in IDBI Bank, while another 14.05 per cent is held by the Small Industries Development Bank of India (Sidbi) in which IDBI is the biggest shareholder.

The combined stake of IDBI and Sidbi works out 70.23 per cent which can be sold to a foreign entity as the new regulations allow up to 74 per cent foreign stake in private banks.

Incidentally, IDBI Bank is the only player among the new private banks, where promoters hold such a large stake.

IDBI Bank has also a strong balance sheet with a very low level of non-performing assets. Other private banks which have been looking around for strategic investors are not in the best of health.

According to sources, a US-based bank and an European bank have already held talks with IDBI. A few big fund houses are also interested in picking stake in IDBI Bank as strategic investors.

"We are keeping our options open. Investors are in touch with us," said a senior IDBI Official.

Sources said that IDBI is likely to be merged with a public sector bank as IDBI Bank is too small for it.

"This will take care of many of the problems including compensation structure which could become a major issue if the merger goes through," said sources.

The salary level of the two institutions are not comparable. "There is wide disparity ... IDBI chairman gets as much as a manager in IDBI Bank," a source said.

If one calculates the cost to company, the salary level in IDBI will be higher as employees get housing facility, etc.

However, despite that, there is a wide gap between the package of an IDBI employee and his counterpart in the bank.

Earlier Chrysalis Capital, WI Carr, Ankaar and New Bridge Capital were in talks for picking up 26 per cent stake in IDBI Bank.

However, the deal not go through as some of the riders palced by the institution was not acceptable to the investors.