RBI assessing potential bidders for majority stake in IDBI Bank

IDBI Bank divestment: Kotak Mahindra Bank, CSB Bank (backed by Prem Watsa), and Emirates NBD have expressed desire to acquire IDBI Bank.

IDBI Bank divestment: According to three sources with insight into the matter, the Reserve Bank of India (RBI) is now evaluating a number of potential bidders who have expressed a desire to acquire a majority stake in the government-owned IDBI Bank Ltd.

Due to the confidential nature of the talks, two anonymous sources say that Kotak Mahindra Bank, CSB Bank backed by Prem Watsa, & Emirates NBD are one of the entities which have expressed interest for the stake.

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The other potential bidders’ names are not confirmed as of now.

Requests for comment on the matter were not entertained by the IDBI, the Finance Ministry, the RBI, the Kotak Mahindra Bank, the CSB Bank, or the Emirates Bank.

As part of a bigger privatization plan, the stake sale in the lender is the first significant divestment across state-owned banks and may net the govt 300 billion Indian rupees ($3.66 billion) at the existing market valuation.

Together with the state-owned Life Insurance Corp of India (LIC), which will sell 30.24% of its 49.24% stake in the bank, the federal government, which holds 45.48% of IDBI Bank, is planning to sell off a 30.48% stake in the lender.

The first round of the stake sale process, called expressions of interest, ended in January, according to the three people.

According to the people, the potential buyers have since started their due diligence on the bank, and they said that financial bids were probably to be submitted later this year.

Before an investor is allowed to purchase a stake in a local bank, the RBI also conducts a “fit and proper evaluation,” which includes thorough background & financial checks on the potential buyers.

As the government will retain a 15% stake in IDBI Bank after the privatization and LIC, a government company, will have a 19% stake, two of the persons said that potential investors have questioned the level of government control in the bank.

One of the sources, “The government does not intend to have any management control.” “The government will take a call if a written submission to that effect is needed.”

According to business consultant Ashvin Parekh, buyers with an existing bank may eventually be required to merge the operation with IDBI due to RBI regulations prohibiting the same investor from owning two banking entities.

He continued by saying that a merger would likely ease concerns about government control by reducing the amount of equity that the government and LIC currently hold.