Government explores IDBI stake sale options: The Indian Government is looking forward to strategically disinvesting and privatizing the IDBI bank following a two stage approach. The first stage will effectively examine the best bidders, and the second stage will actually begin the process of sale of its stocks. IDBI bank has been under the RBI’s prompt corrective action framework from May 2017 to March 2021. Two months after the bank exited the framework, the cabinet committee on Economic Affairs approved the decision of its disinvestment and privatization. Currently the Indian government and LIC jointly hold 45.48% and 49.24% of shares in the IDBI bank.
The official confirmation of the Privatization of IDBI bank came from Tuhin Kanta Pandey, Additional Secretary, Department of Investment and Public Asset Management (DIPAM). The DIPAM Secretary confirmed that the Government is preparing the Expression of Interest (EoI) after which bids for the shares of the company will be invited. He termed the process as the first of its kind, where the privatization will be conducted through a bidding route.
The government and the LIC has planned to sell approximately 65% of their stakes in the IDBI bank, although the Cabinet Committee had, in May 2021, approved a 100% disinvestment by both the stakeholders. The IDBI bank has been struggling with its worsening financial situation, continuously rising bad loans, and declining debt to capital ratios. The bank came into the purview of the Reserve Bank of India in 2017, which immediately brought the bank into the prompt corrective action framework.
Introduced in 2002, the PCA is an initiative of the Reserve bank to identify banks that have been performing poorly, locate its key causes of concerns and work towards improving its conditions. PCA usually targets banks with weak financial status or mismanagement under this framework . The framework imposes a set of guidelines that the bank has to follow for a certain period of time under the supervision of the RBI. No bank under the PCA Framework can breach the guidelines that have been imposed on it.
The government has put the privatization of the IDBI Bank on a fast-track basis, and is planning to get over with it by the end of this year. The disinvestment is not only expected to improve the conditions of the IDBI bank, but will also help the Government strengthen its treasury by earning revenues from such strategic disinvestments.