KPMG advises government on IDBI Bank sale with an expression of interest

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KPMG India has been selected as the transaction adviser for the government’s strategic disinvestment of its 45.48 percent interest in IDBI Bank. Official sources said it would seek expressions of interest (EoI) from potential buyers in October, in line with the plan to complete the transaction this fiscal year.

According to the plan, the government will exit the bank by selling its entire stake in the bank, valued at around Rs 18,500 crore, at current market prices, and the bank’s promoter, Life Insurance Corporation, will offer to sell a portion of its 49.24 percent stake in exchange for management control.

The discussion will soon start with the Reserve Bank of India on the structuring of the transaction in terms of glide path (of the new promoter’s holding), voting rights, etc,” a senior official told FE.

Although the RBI will allow the new promoter of IDBI Bank to hold more than 51 percent, the promoter must eventually reduce his or her holding to the regulatory limit of 15 percent (an RBI panel had proposed last year to increase it from 15 to 26 percent for promoters and 10 to 15 percent for non-promoters) within a set time. Furthermore, the Banking Regulation Act of 1949 stipulates that no shareholder of banking business, whether a PSB or a private sector bank, can exercise more than 26% voting rights.

Following an unsuccessful attempt a few years ago, the government decreased its holding in IDBI Bank in January 2019, allowing LIC to become the bank’s promoter with a 51 percent interest. The Insurance Regulatory and Development Authority granted LIC a special concession, allowing it to own 51 percent of the company instead of the usual 15 percent. However, the insurer will have to reduce its holding to 15% in due time.

Investor interest in state-owned banks with adequate loan-loss reserves may be reflected in the success of the IDBI Bank sale.

IDBI Bank began producing profits in FY21, after a five-year hiatus, with a net profit of Rs 1,359 crore in the years. On March 10, the bank exited the prompt corrective action (PCA) framework due to improved asset quality. It can resume corporate lending, which was halted after it was placed under PCA.

The bank’s net profit increased by almost 300 percent to Rs 603 crore in the June 2021 quarter, owing to better net interest income (NII) growth and improved asset quality.

Investor interest in state-owned banks with adequate loan-loss reserves may be reflected in the success of the IDBI Bank sale.

The government has budgeted Rs 1 lakh crore from disinvestment of government stakes in public sector financial institutions and banks, such as the LIC IPO and IDBI Bank strategic sale, as part of the Rs 1.75 lakh crore disinvestment plan for FY22.

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