Govt to soon reach out to potential buyers of debt-laden IDBI Bank

The government will soon reach out to interested buyers of IDBI Bank and inform them about the broad contours of the strategic disinvestment, which is going to lay the groundwork for privatisation of public sector banks.
 
The Centre, through its advisors, will share the strategic sale plan with investors, and how the deal is expected to be structured, an official said.
 
The exercise would be undertaken before the government comes out with the preliminary information memorandum (PIM) and invites expression of interest (EoI) for the IDBI Bank sale, said an official. The investors’ interest would be gauged, and suitable structuring of the transaction would be done, he added.
 
The government would also inform investors about the banking licence that would come along with the purchase of the lender, and a clutch of investors — including private equity funds other than banks — can also acquire the bank. However, this would be subject to meeting the Reserve Bank of India’s (RBI) ‘fit and proper criteria’. In the case of bidding through consortium, all entities will have to meet the RBI mandated criteria, the official said.
 
The government, in the Budget, had amended the IDBI (Transfer of Undertaking and Repeal) Act, 2003, to grant a licence to IDBI Bank under Section 22 of the Banking Regulation Act after the Centre offloads its stake in the lender. This obviated a situation where the government selling its entire shareholding in the bank would have left the lender without a banking licence, requiring the new owner to apply for a fresh one.
 
Earlier, when IDBI Bank was converted from a development bank to a banking company, it was exempt from obtaining a banking licence from the RBI.
 

The government has also initiated discussion to bring the central bank on board for vetting candidates interested in acquiring the Bank. According to discussions with the RBI, the central bank will screen bidders as early as when the EoI is placed. This would be different from privatisation of other public sector undertakings (PSUs) where vetting of bidders takes place at the second stage of the divestment.
 
The government recently started the privatisation process by holding the first meeting of transaction and legal advisors appointed to manage the IDBI sale along with the lender’s officials. A team of IDBI Bank officials has also been formed to assist in the disinvestment process.
 
The transaction adviser, KPMG India, will soon finalise the deal structure of the sale as the government targets floating the EoI in December.
 
The government is looking to sell its 45.48 per cent shareholding in the bank. Life Insurance Corporation of India (LIC), which owns 49.24 per cent, will also offload its stake to transfer management control to the new buyer. The extent of stake dilution by both the government and the insurer will be decided in consultation with the RBI.
 
The buyer will have to infuse funds, bring in new technology, and implement best management practices for the growth of IDBI Bank. It will have to generate more business for the lender without being dependent on LIC or the government for funds.