Union Budget 2024 to signal next steps for IDBI Bank privatisation

IDBI Bank's market capitalisation is around Rs 95,000 crore. The government could secure close to Rs 29,000 crore for the sale of 30.5% of its 45.5% stake

Attention now turns to the government and the upcoming Union Budget 2024 for signals on the disinvestment process after the Reserve Bank of India (RBI) delivered its ‘fit and proper’ report on bidders for IDBI Bank, according to a report by The Times of India (TOI). This development is a crucial step in the long-awaited privatisation of IDBI Bank, which has been in the pipeline for several years.

The RBI’s report, essential for assessing whether bidders comply with regulatory standards, has cleared all but one bidder—a foreign entity that did not provide the necessary information, and whose home regulator also failed to supply data. This leaves the government, which holds a 45.5 per cent stake in IDBI Bank, and the Life Insurance Corporation (LIC), the largest shareholder with over 49 per cent, poised to proceed with the next phase of the process.

 

IDBI Banks shareholders and privatisation

IDBI Bank’s largest shareholder, Life Insurance Corporation (LIC) holds more than 49 per cent of its stake, while the government holds a 45.5 per cent.

The privatisation plan involves selling 60.7 per cent of the bank. This would combine the government’s 30.5 per cent stake and LIC’s 30.2 per cent share.

With IDBI Bank’s market capitalisation nearing Rs 95,000 crore, the government could potentially secure close to Rs 29,000 crore from this transaction. However, some market analysts have voiced concerns that the terms of the sale might not be sufficiently attractive, TOI noted.

Govt’s privatisation agenda stalled

The Modi administration had initially laid out a robust privatisation agenda, targeting several public sector entities, including BPCL, Concor, BEML, Shipping Corporation, IDBI Bank, and others. Despite this, progress has stalled over the last 18 months, largely due to the 18th Lok Sabha elections, leading to a de facto freeze on disinvestment activities.

The post-election period was expected to rejuvenate these efforts, yet recent political dynamics have cast doubt over the future of disinvestment. Notably, the privatisation of BPCL has been shelved, according to Petroleum Minister Hardeep Puri.

Given the coalition nature of the current government, the forthcoming Budget is anticipated to offer critical signals regarding the administration’s stance on privatisation.

The Union Budget 2024 is likely to provide critical cues in this regard.

Legislative amendments and banking reforms

Aside from privatisation, the government is also expected to introduce amendments to the Banking Regulation Act 1949 and other laws during the upcoming Budget session to facilitate banking sector reforms.

Changes are expected in the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970, and the 1980 Act, which originally facilitated the nationalisation of banks. If approved, these amendments could reduce government ownership in public sector banks below 51 per cent, thereby enhancing bank governance and investor protection.

IDBI Bank, functioning largely as a private lender despite significant government stakes due to capital infusions to mitigate bad debts, is viewed by market experts as a relatively straightforward entity to privatise.

Although the government had planned to address these legislative changes during the winter session of 2021, the bills were not tabled. Nonetheless, with the current rise in public sector undertaking (PSU) stocks, the government remains optimistic about achieving its disinvestment target of Rs 50,000 crore for the current financial year.

The Parliament session will begin on July 22, with the Budget 2024 presentation scheduled for July 23. The session will conclude with the passing of the Finance Bill on August 12. This is expected to be pivotal for the future of IDBI Bank and the broader disinvestment strategy.