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IDBI Bank may be Merged with Private Lender – It is expected that the government will soon set up a high-level committee headed by the cabinet secretary that will oversee strategic divestments, including the IDBI stake sale.
The government has hired SBI Capital Markets to draw up plans for the sale of a strategic stake in IDBI Bank and is open to a range of options including merger with a non-state lender and preferential allotments to institutions of sound financial standing.
Other proposals that have emerged in early talks include a follow on public offer and sale to institutional investors through the open market, said persons with knowledge of the two rounds of discussions that have already been held. A merger would face the minimum regulatory hurdle.
This will only need the Reserve Bank of India’s permission, the person said. The government currently owns 76.5% of IDBI Bank. IDBI Bank is governed by the IDBI Act and the government can lower its stake without having to approach Parliament. That’s in contrast with the position at other state-run banks, where the government has committed to retain a 52% holding at least.
It is expected that the government will soon set up a high-level committee headed by the cabinet secretary that will oversee strategic divestments, including the IDBI stake sale. The investment banking arm of the country’s largest bank will work on valuation, different divestment models and how to sell overseas assets and liabilities.
A senior government official told that the idea is to identify the core assets of the bank and the regulatory steps that may be required to bring down the government’s stake. How much it will sell hasn’t been decided yet. “There is no cap that we have thought of as of now on equity dilution. We will identify all the alternatives and then proceed for relevant regulatory approvals,” said one of the two persons cited above. Based on Wednesday’s closing price of Rs 84.8 a share, IDBI Bank’s market value amounts to Rs 13,600 crore.
Possible merger partners could include entities that have recently got approval to set up small banks. “This can turn out to be an opportunity for them to get into the league of larger banks,” said one of the officials cited above. The valuation methodology will be made transparent to protect the process from legal challenge.
“In the past we have seen that any strategic disinvestment has led to lot of issues mostly on valuations. We do not want that in this case,” said the first official cited above. IDBI Bank said on Wednesday that September quarter net profit remained almost flat at Rs 119.5 crore compared with Rs 118.49 crore in the year earlier. Net non-performing assets (NPAs) widened to 3.16% from 2.79% of loans in the year-ago period.
Last month, minister of state for finance Jayant Sinha had said that the government was considering transforming IDBI Bank in a manner similar to that of Axis Bank, formerly UTI Bank. The government is looking to raise a record Rs 69,500 crore from asset sales this year.