IDBI Bank shares surge as govt considers more operational freedom

Currently, the government holds 76.5% stake in the lender

The IDBI stock surged 17 per cent on Monday, owing to the government’s suggestion that it might provide more operational freedom to the public sector lender.

“Consider Axis Bank…that is the model in which, through various government instrumentalities, the government has major shareholding but it maintains arm’s-length distance. It is a bank that has done remarkably well. Therefore, can we, with regard to any other institution that we have, such as IDBI, follow that model?” said Arun Jaitley, Finance Minister in an interview.

Currently, the government holds 76.5 per cent stake in IDBI Bank (as per the shareholding pattern as on 30 June 2015). Special Undertaking of the Unit Trust of India (SUUTI), a completely government owned entity, holds 11.57 per cent stake in Axis Bank.

The PJ Nayak report committee had also suggested that the Axis Bank model can be followed by other banks also. The report explains that at the time when Axis Bank was given a private sector bank license it was owned by public sector units.

Even after the bank was listed in 1998, it continued with a majority public sector shareholding, right up to February 2003, when the UTI shareholding was transferred to the SUUTI. SUUTI appoints the non-executive Chairman and upto two directors on the Board, and there is no direct intervention by the Finance Ministry.

"In March 2014 SUUTI sold 9 per cent of the bank's equity stake for Rs 5,550 crores. The Government has done well as an investor. There is no reason why this theme should not be played out across much of public sector banking, were the style of control to move from the present Government-as-Sovereign to Government-asInvestor. A process for transiting between these roles is proposed," said the PJ Nayak committee report.

Earlier this year, at the two-day banking summit held in Pune Prime Minister Narendra Modi had said that they will not interfere in the functioning of the banks. However, bankers believe that not much has changed since then.

However, enthused at the idea of being granted more autonomy IDBI bank shares surged ended the day at Rs 69.45, up 17 per cent on the Bombay Stock Exchange.