Govt clarifies foreign funds can own over 51% stake in IDBI Bank

This comes ahead of the December 16 deadline for potential bidders to submit EoIs for picking up majority stake in the private sector lender

The government on Tuesday said it will allow a consortium of foreign funds and investment companies to own over 51 per cent in IDBI bank, clarifying that foreign ownership criteria was for new private banks and were not applicable on existing ones.

This comes ahead of the December 16 deadline for potential bidders to submit expressions of interest (EoIs) for picking up majority stake in the private sector lender. 

“The residency requirement of the promoter, under the Reserve Bank of India’s (RBI’s) guidelines, is in the context of new/prospective banks. However, as IDBI Bank is an existing company, for the purposes of the transaction, the said residency criteria will not apply to a consortium consisting of funds/investment vehicle incorporated outside India,” the Department of Investment and Public Asset Management (Dipam) said in response to a potential bidder’s queries on Tuesday.

At present, the RBI rules restrict foreign ownership in private banks. 

Dipam also indicated that the government and the central bank will ease the five-year lock-in period for shares if the bank gets merged with a non-banking financial company (NBFC). 

“The lock-in requirements in the event of such amalgamation shall be addressed suitably, in consultation with the RBI, on a case-to-case basis,” the department said, adding that the amalgamation of an NBFC/banking company with IDBI Bank will be guided by provisions of Banking Regulation Act, 1949, and the Master Directions on “Amalgamation of Private Sector Banks”, as amended from time to time. 

Life Insurance Corporation (LIC) and the government hold 49.24 per cent and 45.48 per cent in IDBI Bank, respectively.

Together, they hold 94.72 per cent, while the public shareholding is 5.28 per cent.

In October, the government and the LIC decided to offload a little over 30 per cent each in IDBI Bank. They issued a preliminary information memorandum, inviting EoIs for an aggregate 60.72 per cent stake, along with management control.

The Centre is eyeing a valuation of about Rs 60,000 crore, which higher than IDBI Bank’s current market value. The deal involves a two-stage process by which potential bidders will have to pass the RBI’s “fit and proper” criteria, after they submit their financial bids.