This will be the largest foreign direct investment in the financial sector of our economy so far, and will help generate a positive sentiment for economic reforms, while improving the investment climate in the country at large, the government said.
Due to its poor financial health, the IDBI Bank required repeated infusion of capital, initially provided by the Government of India and later by the LIC.
On 5th May, 2017, the Reserve Bank of India (RBI) put the IDBI Bank under the Prompt Corrective Action Framework and imposed several restrictions in view of its non-performing assets and losses incurred by the Bank. After considering the improvement in the Bank’s financial health, the RBI later, vide its letter dated 10th March, 2021, lifted the restrictions imposed on the IDBI Bank subject to certain conditions and continuous monitoring.
The CCEA had approved strategic restructuring of the IDBI Bank Ltd., and in compliance thereof, it was decided that an aggregate 60.72 per cent of the equity stake in the IDBI Bank Ltd be sold to a Strategic Buyer, of which, the government of India share would be 30.48 per cent and the LIC share would be 30.24 per cent, leaving a residual shareholding of 15 per cent with the GoI and 19 per cent with the LIC.
Both the government and LIC will withdraw their nominees from the bank’s board and become public shareholders.
The CCEA has also delegated powers to the Alternative Mechanism to undertake minority stake sales of the government’s residual shareholding (15% of the total shareholding of the IDBI Bank Ltd.) through the open market in accordance with the standard operating procedure. The LIC will be free to manage its residual shareholding in accordance with its internal procedures.
The Preliminary Information Memorandum (PIM) inviting Expression of Interest (EoI) from all interested parties was issued on 07.10.2022. Of the five parties who initially submitted their Expression of interest, four parties qualified as per the eligibility criteria and disqualification conditions prescribed in the Preliminary Information Memorandum (PIM), of which, two finally submitted their techno- financial bids and became Qualified Bidders (QBs) for this transaction.
The transaction will have a significantly positive effect on the banking and financial sector of our economy, the government said.
The IDBI Bank, post-privatization, would be able to generate funds without any dependence on government assistance as has been the experience in the past. It is expected that the strategic buyer will infuse private capital, bring-in new technology and better management practices, which will help enhance its business potential and make it more competitive for both credit and deposit growth, it said.
“Having supported the bank’s recovery, we are now enabling its next phase of growth through the infusion of Foreign Direct Investment while retaining a minority stake. This will not only strengthen the banking ecosystem but also help banking services surpass global benchmarks. It reinforces that India’s growth story is strong, its economy is resilient, and the government’s commitment to reform is unwavering,” Union Finance Minister Nirmala Sitharaman said.
With an unshakable resolve toward economic transformation, we are shaping a future-ready financial sector dedicated to empowering customers, backing entrepreneurs, and fuelling the vision of a Viksit Bharat, she said.