Special dispensation on voting rights not likely for IDBI Bank buyer

May be capped at 26%, irrespective of stake bought

The government is unlikely to grant any special dispensation to the new buyer of IDBI Bank by capping its voting rights at 26 per cent, even if an investor picks up 50 per cent or more stake in the lender, officials in the know said.

The Reserve Bank of India (RBI) has been of the view that the voting rights of a buyer should be capped at 26 per cent, irrespective of the quantum of stake it buys in a bank. This has been agreed upon by the Centre, an official said.

The issue has been part of deliberations between the government and the RBI as the former is finalising conditions for the strategic divestment of IDBI Bank, and will soon float an expression of interest.

In November 2021, the RBI had accepted the recommendations of an internal working group, raising the cap on promoters’ stake in the long run of 15 years from 15 per cent to 26 per cent of the paid-up voting equity shares of private banks. 

Even as the voting rights will be capped at 26 per cent, the management control will be transferred to the new buyer. The government and LIC, who would continue to hold a residual stake, will not interfere in management of the lender, the official quoted above said. The buyer will get powers to appoint the new management team and other key personnel, and implement best management practices.

“The new buyer will get complete independence in appointing the lender’s CEO and top officials, just like the Tatas have been able to appoint a new management at Air India,” the official said. 

The Centre will soon decide the quantum of stake it will sell in IDBI Bank through the strategic divestment exercise. The government presently owns 45.48 per cent in IDBI Bank, while LIC holds a 49.24 per cent stake.

If an entity is no longer categorised as a promoter of the bank, its voting rights -- in this case LIC and the government -- will be capped at a maximum 15 per cent, if they collectively hold more than 15 per cent stake, said Anil Gupta, vice president at ICRA.

“New promoters of IDBI Bank will have maximum voting rights that will be capped at 26 per cent. The new buyer may also consider offering board positions to the government and LIC to provide some comfort to depositors,” Gupta said.

The quantum of stake dilution would be decided in consultation with the RBI after reaching out to potential buyers. The government is starting roadshows for the divestment of the lender from February 25 to gauge preliminary interest among buyers, and would accordingly set conditions for the sale.

Final touches

• Capping of voting rights has been a key concern for Reserve Bank of India
• Centre has agreed to RBI’s condition as it prepares for roadshows for IDBI Bank sale, EoI
• Buyer to get complete freedom to appoint CEO and key personnel
• Reserve Bank of India to vet potential buyers at EoI stage

“The decision on voting rights has been taken post deliberations with the regulator. The LIC has turned around the bank, and would also look at exiting the lender completely at some time,” the official said.

On Monday, LIC Chairman MR Kumar said the insurer would like to retain some stake in IDBI Bank so that LIC continues to reap the benefits of the bancassurance channel.

Another issue that has been set straight is that the EoI will include RBI’s fit and proper criteria with a host of conditions specified to be met. The vetting of bids would be done by the regulator, the official quoted above said.

Interested parties would look at buying a 51 per cent stake in IDBI Bank, and the sale would need approval from the RBI. The current regulations restrict shareholding to 26 per cent, even for promoters, and any stake held above that cap will require special approval from the RBI. A similar approval was granted to LIC when it acquired government’s shareholding in IDBI Bank. The government will soon invite expression of interest (EoI) for the sale of the bank.