Cabinet clears sale of 60.72% of IDBI Bank to Fairfax for about ₹52,878 crore

The Union Cabinet on Wednesday approved the sale of a controlling 60.72% stake in IDBI Bank to a Canadian company owned by Prem Watsa’s Fairfax Financial Holdings, closing a privatisation that the government first cleared in principle five years ago.

The Cabinet Committee on Economic Affairs, chaired by Prime Minister Narendra Modi, named 10955230 Canada Inc, whose parent is Fairfax Financial Holdings, as the strategic buyer. It will pay about ₹52,878 crore at ₹81 a share. The government is selling 30.48% and the Life Insurance Corporation of India (LIC) 30.24%.

“Once completed, this will be the largest FDI in the financial sector of our economy so far,” the government said in its statement.

How the price was set

The sale ran as a two-stage competitive auction. Two qualified bidders put in financial bids, and the winning offer of ₹81 a share was above ₹75.99, the average of two independent valuations. The Dubai-based Emirates NBD was reported to be the other bidder; both submitted revised offers in July.

The government said it did not use the stock market price as the basis for valuation. It argued that IDBI Bank shares are thinly traded and volatile, so the market price was not a fair guide to the bank’s intrinsic value.

Briefing reporters after the meeting, Information and Broadcasting Minister Ashwini Vaishnaw linked the sale to the economy’s need for fresh money. “As India continues to grow at a rapid pace, there is a significant need for growth capital,” he said.

From crisis to sale

IDBI Bank was placed under the Reserve Bank of India’s Prompt Corrective Action framework in May 2017 because of high bad loans and losses. The RBI lifted those restrictions in March 2021, with conditions and continued monitoring. Two months later, in May 2021, the CCEA gave in-principle approval for strategic disinvestment along with a transfer of management control, and LIC’s board agreed to sell alongside the government.

After the deal, the government will keep 15% and LIC 19%, a combined 34%. An empowered group of ministers will sell the government’s remaining stake in the open market, while LIC will manage its holding under the direction of its regulators.

What happens next

The buyer must file certificates with the RBI and submit a roadmap showing how it will meet regulatory requirements. Fairfax will also have to make an open offer to minority shareholders. Because it already holds a stake in CSB Bank, it will have two years either to merge CSB with IDBI Bank or to exit that holding.

Arunish Chawla, Secretary of the Department of Investment and Public Asset Management, said the transaction would be completed before the end of the current financial year, which ends on 31 March 2027.

It is the biggest strategic disinvestment by the Centre since the sale of Air India.