Exit INDIA coalition, Exit IDBI Bank: Govt and LIC to expedite IDBI Bank stake sale process after June 4 election results

A banker jokes, "Der aaye, lekin durust aaye," about the long-pending privatization of IDBI Bank that will finally see the light of day. He explains his 'better late than never' remark by saying that it is now a done deal, as the Congress-led INDIA coalition would have definitely stalled it.

There is more good news for the BJP-led NDA alliance.

IDBI Bank's market valuation has almost doubled from Rs 45,000 crore in October 2022, when the Department of Investment and Public Asset Management invited bids, to the current Rs 92,000 crore. "There will be a further boost to the valuation with the clarity of policy and faster decision making going forward," he says.

The exit polls giving the BJP-led NDA front a clear majority actually pave the way for accelerated IDBI Bank privatization by the Government and Life Insurance Corporation (LIC), which was long pending.

The uncertainty over the bank's privatization drive stalled just before the assembly elections began in five states—Madhya Pradesh, Rajasthan, Telangana, Mizoram, and Chhattisgarh—in October last year.

By December, when the assembly election results came out, mostly in favor of the BJP, the campaign for Lok Sabha elections started in full swing, with the Congress-led INDIA coalition making a case against privatization.

If the exit poll results hold on June 04, the financial services industry will see the first bold move of handing over a public sector asset to a private player or even a foreign player.

While the stake was offered to private banks, NBFCs, and other interested investors with a minimum net worth of Rs 22,500 crore, there was interest from Canadian billionaire Prem Watsa's CSB Bank (erstwhile Catholic Syrian Bank), Kotak Mahindra Bank, and Emirates NBD.

Emirates NBD is a leading banking group in the MENAT region, which includes the Middle East, North Africa, and Turkey. Fairfax is seen as emerging as a frontrunner. These two players are strictly not Indian domestic players.

Watsa's flagship company, Fairfax, has been investing in India for over two decades. It has investments in Bangalore International Airport, Catholic Syrian Bank, the National Stock Exchange, Thomas Cook India, and the online insurance player Digit Insurance.

Watsa was an early investor in ICICI Lombard General Insurance, a stake he sold recently after holding it for close to two decades. Watsa is a long-term player with a track record of turning around companies and creating wealth for shareholders.

"There could be a bidding war for IDBI Bank if another suitor emerges with better pricing as the stability of the government and the future growth trajectory will create wealth in the financial services space," says a banking consultant.

In the last 20 months, the strategic disinvestment in IDBI Bank was mired in various issues, including delays in regulatory approvals, security clearances, valuation differences, and state elections, as well as the general elections. Now, the path is clear for the disinvestment of 60.72% in the bank, which includes the government's 30.48% and LIC's 30.24%.

Both the government’s and LIC’s stakes will reduce to minority holdings of 15% and 19% respectively, after the sell-off.

In the Budget 2021-22, the finance minister announced the strategic disinvestment of the government's and LIC's shareholding in the bank, along with the transfer of management control.

As per the bid requirement, there is a requirement of a 40% stake subject to a lock-in for a period of five years.

In terms of performance, there has been a big improvement in the last year when the process was delayed. For instance, total revenues are up from Rs 24,941 crore in FY23 to Rs 30,037 crore in FY24. In the same period, net profits are up 54% from Rs 3,645 crore to Rs 5,634 crore. Gross NPAs are down from 6.38% to 4.53%. The return on assets (ROA) is up from 1.20% to 1.65%.

Clearly, the privatization of IDBI Bank will also set the tone for privatizing other assets in the insurance and banking sectors.