IDBI Bank stake sale in limbo as govt faces legal hurdles in exit

The hurdle might push the government's plan to sell its entire stake in the lender to the next financial year

The government is facing legal challenges in exiting IDBI Bank. It might have to repeal the same legislation under which IDBI was incorporated as a bank, but annulling it could leave the lender without a banking licence.
 
This hurdle might push the government’s plan to sell its entire stake in the lender to the next financial year.
 
The finance ministry is in talks with the Reserve Bank of India (RBI) to make changes in the legislation so that the government's 47 per cent stake in IDBI Bank can be sold, a senior government official said.
 

The government is consulting the RBI on whether the proposed sale requires amendment or repeal of the Industrial Development Bank (Transfer of Undertaking and Repeal) Act, 2003.

 
The Act made the then IDBI Ltd a banking company but exempted it from obtaining a licence under Section 22 of the Banking Regulation Act. Section 22 says no company shall conduct banking business in the country unless it holds a licence issued by the RBI.
 
This is one of the issues that is being looked at by the Department of Financial Services, the official quoted above said. If the government exits the bank completely, can the lender still come under a statute or will it have to be repealed and a fresh licence will have to be sought? Having a statute for the lender would be redundant if the government has no role in its functioning, the official said. The government is consulting the RBI on these issues, he said.

 
Resolving these issues could delay sell-off in the bank in the ongoing fiscal year.
 
The Department of Investment and Public Asset Management is in the process of appointing a consultant who would advise the government in matters relating to the management of government equity in banks, insurance companies, and financial institutions.
 
Some intermediate steps are required for the sale of the government’s stake in IDBI Bank, and that is under process, said another government official. The pandemic has also impacted the process, and the sale may be completed next year, the official said.
 
In the Budget for 2020-21, Finance Minister Nirmala Sitharaman had announced that the government’s balance shareholding in IDBI Bank would be sold to private, retail, and institutional investors through the stock exchange.

 
In an interview with Business Standard last week, Financial Services Secretary Debasish Panda had said that if a bigger stake of IDBI Bank is under sale, a potential investor might be keener. “Having small retail investors may not help in getting better value,” he had said.
 
Life Insurance Corporation of India would also consider selling its stake in IDBI Bank, as a new buyer would want to hold a majority stake in the lender. The government indirectly holds 98 per cent in the bank through LIC. The government had sold its 51 per cent stake in IDBI Bank to LIC in 2018.