The Centre has approved the sale of a majority stake in IDBI Bank to Canada-based Fairfax Financial Holdings for ₹52,878 crore, paving the way for one of India’s largest banking privatisations and the biggest foreign direct investment in the country’s financial services sector.
Fairfax will acquire a combined 60.72 per cent stake held by the Centre and Life Insurance Corporation of India (LIC), with the government selling 30.48 per cent and LIC divesting 30.24 per cent. The proposed transaction values the offer at ₹81 per share, an 11 per cent discount to IDBI Bank’s closing price of ₹90.40 on Wednesday.
It will be the biggest strategic divestment ever by the government, overshadowing the ₹18,000-crore stake sale in Air India to the Tata Group in 2021.
Following the transaction, the government and LIC will retain a combined 34 per cent stake in the lender, allowing them to maintain a minority interest while transferring management control to the strategic investor.
“The way India is growing, we need more growth capital. To meet the capital requirement, we need many institutions that can provide the same and also support MSMEs. With the help of a strategic partner, new capital will be infused. This is the largest FDI in India’s financial services sector. We have followed a transparent and competitive mechanism,” Union minister Ashwini Vaishnaw said while announcing the Cabinet decisions on Wednesday.
Finance minister Nirmala Sitharaman said the government was enabling the bank’s next growth phase after supporting its recovery. The infusion of foreign capital, while retaining a minority stake, would strengthen the banking system and help banking services meet global benchmarks, she said in a post on X.
Privatisation pathway
The proposed strategic disinvestment was first announced in 2022 but encountered regulatory and procedural hurdles. The process was put on hold in March after bids fell short of the government’s expected valuation.
To determine an acceptable price, the finance ministry adopted two valuation methods: a market-multiple approach to establish the enterprise’s fair market value and an asset-based assessment of its net asset value, taking into account tangible and intangible assets, including land and properties, as well as liabilities.
The average of the two valuations produced a benchmark price of ₹75.99 per share for evaluating qualified bids. The winning offer of ₹81 per share exceeded this benchmark and the fair-value estimates submitted by independent valuation agencies, prompting the government to approve the transaction, the finance ministry said.
The approved buyer, Canada Inc, the parent entity of Fairfax Financial Holdings, must submit its credentials to the Reserve Bank of India (RBI) for a ‘fit and proper’ assessment, building on the scrutiny undertaken at the expression-of-interest stage. It must also provide a roadmap for complying with applicable regulatory requirements.
The share purchase agreement is expected to be signed and executed before the end of the current calendar year. The invested capital will remain locked in for three years, while IDBI Bank will retain its existing brand name.
Regulatory implications
The transaction also has implications for Fairfax’s existing banking interests in India. Through FIH Mauritius Investments Ltd, Fairfax holds a 40 per cent stake in CSB Bank. The group may therefore have to consider reducing its stake or exploring a merger of the two banking businesses.
LIC will have to bring down its stake in IDBI Bank to 15 per cent in line with RBI norms.
Divestment target
According to the Department of Investment and Public Asset Management, the Centre has so far raised ₹55,757 crore through divestment and another ₹6,367 crore through asset monetisation.
If the IDBI Bank transaction is completed by March 31, 2027, the government could surpass its divestment target of ₹80,000 crore for the fiscal year.