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The central government has approached the Reserve Bank of India (RBI), seeking relaxation in the promoter shareholding cap for the new buyer of IDBI Bank.
The Centre has sought relaxing the 26-per cent cap for new promoters of IDBI Bank, as it looks to initiate a strategic divestment of the lender. The RBI is considering the Centre’s proposal, as the government plans to come up with an expression of interest (EoI) and preliminary information memorandum for the bank's sale.
The Department of Investment and Public Asset Management has had consultations with the RBI late last month, along with government-appointed intermediaries, to finalise conditions for the strategic disinvestment of IDBI Bank.
“The 26-per cent cap will have to be relaxed, given that the new buyer will want to hold a majority shareholding in IDBI Bank,” said people aware of the development.
The government currently holds a 45.5 per cent stake in IDBI Bank. Life Insurance Corporation (LIC) of India owns 49.2 per cent stake in the lender. The remaining 5.3 per cent is held by public shareholders.
Even as bidding through a consortium is said to be allowed, the request to allow individual promoters to hold more stake in the lender has been sought, said people quoted earlier. After discussions with the government, the RBI is considering relaxing the shareholding cap.
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, said Prakash Agrawal, director, India Ratings & Research.
While in the past the RBI has allowed higher shareholding, it has taken place with a road map to reduce promoter shareholding over a period of time, said Agrawal.
This won't be the first time the central bank will consider relaxing the promoter cap for IDBI Bank. In 2018, the RBI had granted approval to LIC to hold 51 per cent stake in IDBI Bank.
“The RBI has been considering such requests in the past on a case-by-case basis, reminiscent of LIC being allowed to own majority stake in IDBI Bank, CSB Bank, Lakshmi Vilas Bank, depending upon the merits of the case,” said Anil Gupta, vice-president, ICRA. The new buyer will want to run the show for a few more years to turn around IDBI Bank.
Typically, the new owner will need to re-strategise the operations and business strategy for the bank, requiring greater autonomy in running the bank and usher in changes, said Gupta.
A higher shareholding will also be an incentive for new shareholders to have a higher share in the pie of value created upon turnaround of the institution, he added.
The government is yet to finalise the stake LIC and the Centre will reduce in IDBI Bank. However, talks have been held to proportionately bring down shareholding in the lender. The government may also look at retaining around 26 per cent stake in the lender, in line with proposed amendments planned for privatisation of two other public sector banks (PSBs).
Although the government could not introduce the Banking Laws (Amendment) Bill, 2021, in the winter session of Parliament, it had planned on bringing down its shareholding in PSBs from a minimum 51 per cent to at least 26 per cent.
However, a final decision on reducing the government’s shareholding in IDBI Bank is yet to be taken.
While announcing its decision on a strategic disinvestment of IDBI Bank, the government had said the quantum of stake dilution by the Centre and LIC will be decided while structuring the transaction, in consultation with the RBI.
The buyers will be subject to the RBI’s fit-and-proper criteria.
The government is also in talks to bring the central bank on board to vet the candidates interested in acquiring IDBI Bank. The RBI may screen bidders as early as when the EoI is placed.
