Cabinet gives final approval to mega disinvestment of IDBI Bank: Fairfax will buy 60.72% stake at the price of ₹ 81/share

A new chapter has been added to the history of banking and public disinvestment in India. The Cabinet Committee on Economic Affairs (CCEA), chaired by Prime Minister Narendra Modi, has given formal approval to the proposal for transfer of management control and strategic sale of majority stake in IDBI Bank. Fairfax Financial Holdings, led by Canadian billionaire investor Prem Vats, has won the historic deal by winning the highest financial bid to buy a total 60.72% stake in the bank.

The total deal is worth ₹52,878 crore (about US$5.6 billion). Air India’s privatization by Tata Group for ₹18,000 crore has become India’s largest strategic disinvestment deal till date. Additionally, it has also proved to be the largest Foreign Direct Investment (FDI) in Indian banking history.

Pursuant to terms approved by Cabinet, the Fairfax Group subsidiary (10955230 Canada Inc.) ₹81 per share This bid has been placed at:

• Rate above fair value: This bid is well above the reserve/fair price of ₹75.99 decided by independent valuers and transaction advisors (KPMG and legal advisors).

• Successful Bidding Process: Fairfax’s bid was found to be the best financially and technically following a multi-stage competitive auction process involving global financial institutions and private equity funds (Emirates NBD and Kotak Bank-backed consortium).

Currently, the Central Government and Life Insurance Corporation of India (LIC) jointly hold about 94.7% stake in IDBI Bank. Under this strategic sale, both are selling their stake proportionately:

special Notes: Even after this deal, the Central Government (15%) and LIC (19%) will retain a strong minority stake of about 34% in the bank, thereby maintaining institutional stability.

Necessary policy and procedural approvals have been given by the regulatory authorities to streamline this mega deal:

1. RBI’s ‘fit and proper’ approval: The Reserve Bank of India (RBI) had already issued ‘fit and proper’ clearance to Fairfax Group after a thorough scrutiny of its background and financial credentials.

2. Mandatory Open Offer of 26%: Under SEBI Takeover Code rules, after buying 60.72% stake, Fairfax will have to make a mandatory ‘open offer’ to buy additional 26% shares from public shareholders at ₹81 per share or based on SEBI formula.

3. Relief in Holding Dilution: Under general RBI rules, bank promoters have to reduce their stake to 26% in 15 years. However, under the special restructuring of IDBI Bank, Fairfax has been provided a favorable and phased roadmap to reduce stake.

Cabinet has added stringent provisions in the Disinvestment Agreement (Share Purchase Agreement – SPA) to protect the interests of bank employees and common depositors:

• Job and service conditions of employees: The pay scales, pension benefits, gratuity and service conditions of more than 17,000 existing regular employees of the bank have been 100% guaranteed for at least 3 years. There will be a complete ban on any kind of compulsory retrenchment.

• IDBI Brand Name: The bank will continue to operate with the original name and identity of ‘IDBI Bank’ for the next 3 years, so that trust among the customers is maintained.

• Depositors’ money safe: The banking license of the bank will remain as it is under Schedule-II of RBI and the deposits of all the depositors will be completely protected under the guarantee insurance of ₹ 5 lakh of RBI and DICGC.

At one time the Gross NPA of IDBI Bank had reached an alarming level of 27% and the bank was stuck in the Prompt Corrective Action (PCA) framework of RBI. Since LIC bailed it out in 2019, the bank has shown an extraordinary turnaround:

• Today the gross NPA of the bank has come down to around 3% and the net NPA has come down to a low level of 0.3%.

• The bank has been consistently posting record profits quarter after quarter and its capital adequacy ratio (CAR) is more than 22%.

This single deal will directly bring into the Central Government’s treasury approximately ₹26,000 to ₹27,000 crore An amount of Rs. will come. This will greatly help in achieving the disinvestment target of the current financial year and keeping the fiscal deficit under control. Additionally, LIC will also get liquidity of about ₹26,000 crore, which it can use to increase bonuses to its policyholders and infrastructure investments.

This deal sends a clear message to global investors that major financial and structural reforms in India are now moving forward at full speed, which will also give new heights to the valuations of other PSUs in the country.