The fall and rise of IDBI Bank: From bad-loan crisis to the Fairfax deal

The decision to sell a majority stake in IDBI Bank Ltd to Canadian billionaire Prem Watsa’s Fairfax Financial Holdings Ltd is a reflection of how much ties have improved between India and Canada in the last one-and-a-half years, following the strains during Justin Trudeau’s tenure as prime minister. 

Mark Carney, who succeeded Trudeau in March 2025, made efforts to repair and strengthen the relationship between the two countries. As part of the efforts, he visited India in February-March last year — the first Canadian PM to do so since 2018. And it was this visit that brought Fairfax in the play. 

Now that the government has finally approved — five years after it was mooted — selling 60.72 per cent in IDBI Bank to Canada Inc, parent of Fairfax Financial Holdings Ltd, for a whopping ₹52,878 crore, the sale marks a turning point for an institution whose history mirrors the changing priorities of India’s financial sector. 

From financing industrial development after Independence to commercial banking, a prolonged bad-loan crisis and a recovery that paved the way for a change in ownership, IDBI Bank’s journey has been anything but linear. 

The legacy is a story of two contrasting phases — its original role in financing India’s industrial development and the subsequent challenge of repairing a balance sheet damaged by bad loans. 

Established on July 1, 1964, as the Industrial Development Bank of India, the institution was created to support the country’s industrialisation. It operated as a development finance institution (DFI), providing long-term funding for industrial projects, modernisation and expansion, while helping develop capital markets and support industrial growth in less-developed regions.

Its role changed as India’s financial system evolved. With commercial banks expanding their lending to industry and the distinction between development finance and commercial banking becoming less pronounced, IDBI was converted into a banking company on October 1, 2004. 

In 2005, IDBI Bank was merged with IDBI Ltd, and the institution was renamed IDBI Bank Ltd in 2008. The merger of the financially distressed United Western Bank in 2006 added to its operations but also brought the challenge of integrating a troubled lender. 

The bank’s difficulties became particularly visible during the period of aggressive corporate lending in the mid-to-late 2000s. A number of large borrowers subsequently defaulted, leaving IDBI and other consortium lenders with substantial losses. Among the prominent cases was Kingfisher Airlines Ltd. 

IDBI’s deterioration in asset quality became severe with more than one-third of its loan book turning bad with gross non-performing assets (NPAs) rising to 31.78 per cent of advances in September 2018, while net NPAs stood at 17.30 per cent.

The Reserve Bank of India (RBI) placed the bank under its Prompt Corrective Action (PCA) framework, restricting its ability to expand certain activities while it worked to improve its capital position and asset quality. 

The recovery required substantial support from the government which infused around ₹25,000 crore into the bank between 2010 and 2020, while Life Insurance Corporation of India (LIC) acquired a controlling stake. 

The bank’s latest financial numbers show the scale of its recovery. 

Gross NPAs fell to 2.32 per cent in March 2026 from 31.78 per cent in September 2018, while net NPAs declined to 0.15 per cent from 17.30 per cent over the same period. Its capital adequacy ratio recovered to 26.65 per cent in March 2026. 

IDBI Bank reported a record net profit of ₹9,513 crore in the financial year ended March 2026, up around 27 per cent from ₹7,515 crore in the previous year. Total deposits rose 12 per cent year-on-year to ₹3.47 trillion, while net advances increased 16 per cent to ₹2.54 trillion.   

The improvement is also reflected in the bank’s expanding business. Its total business had crossed ₹6.27 trillion as of September 30, according to figures provided by the bank, representing an 18 per cent growth over a year. 

The improved balance sheet has changed the question facing the bank: From how to contain losses and restore capital to how to sustain growth under a new ownership structure. 

The government gave in-principle approval to strategic disinvestment in IDBI Bank in May 2021, with the objective of transferring management control and reducing the bank’s dependence on government and LIC support. 

The proposed Fairfax deal is therefore more than a change in shareholding. It is an attempt to move a bank that once required public capital support towards a model in which a strategic investor assumes management control and provides the resources and expertise needed for its next phase of growth. 

The bank will continue to be regulated and supervised by the RBI, and the ownership change does not by itself alter the terms of existing deposits or loans. Deposit insurance will continue to apply under the existing rules, including cover of up to ₹5 lakh per depositor per bank under the Deposit Insurance and Credit Guarantee Corporation framework.