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WHAT'S HAPPENING ?
The Centre will soon float an expression of interest (Eol) for strategic disinvestment of IDBI Bank and The transaction may provide a template for privatisation of public sector banks as per the new public sector enterprises policy, Department of investment and public asset management (Dipam) secretary Tuhin Kanta Pandey said.
IDBI Bank will be the first of its kind transaction where a bank will be privatised in the real sense, Even though it is even now perceived as a private bank from the regulatory point of view as the government holds 45.48%, below the 51% threshold. State-run Life Insurance Corporate holds 49.24% of the lender.
IDBI NOW OUT OF PCA
IDBI Bank was under the Reserve Bank of India's Prompt Corrective Action (PCA) framework from May 2017 to March 2021.
Two months after the bank exited the framework, the cabinet committee on economic affairs gave in-principle approval for its strategic disinvestment and transfer of management control.
"We have been at it for quite some time," Tuhin Kanta Pandey, DIPAM, said.
"It is also a first-of-its-kind transaction, where through a bidding route, we will be privatizing a bank.
Now that the bank has come out of PCA, it is looking up; we have a potential that this could also be the first case of actually bringing in a private partner there.
And the expression of interest, we are working at it, and it will be issued soon," Pandey said at an industry event on Wednesday.
The government recently conducted road shows in the US and locally for the IDBI Bank stake sale and has sought clarity from the Reserve Bank on,
The deal size, guidelines or conditions on mergers, consortium composition and the glide path for the government to reduce its equity holding in the bank.
DISINVESTMENT TARGET
The IDBI Bank sale, if it concludes this financial year, will contribute to the FY23 divestment target of 65,000 crore. It has already raised 24,544 crore, most of it by listing the country's biggest insurer LIC in May.
The central government is planning the privatization of several companies, including BEML, Shipping Corp, Concor, Vizag Steel, IDBI Bank, Nagarnar Steel Plant of NMDC and HLL Lifecare.
Pandey added that demerging land assets of companies like BEML will speed up their disinvestment.
WHY THE IDBI IS IMPORTANT FOR GOVT ?
Six years ago, at the height of the twin balance sheet crisis-over leveraged corporates and banks weighed down by a mountain of bad loans. The government somehow bought into the idea of experimenting with selling off a bank promoted by the government.
Yet, two years after announcing the government's plan in the budget of 2016 to sell its stake in IDBI Bank, Arun Jaitley who was the finance minister then, was forced to concede that India was perhaps not quite ready for privatisation of state-owned banks.
That will be put to test again this fiscal suggest news reports as the government readies for what it claims is a new bidding process for the bank.
Presumably, employee resistance is now much lower than the last time. Especially so after the IPO of LIC.
The banking industry tailwind marked by improved loan recoveries, credit growth, asset quality and balance sheets, has pushed the IDBI Bank boat too as is reflected in its financials for the quarter ended June.
THE JOURNEY OF ICICI & IDBI
In their glory days during the 80s and 90s, these two institutions were the primary financiers of many Indian corporates and business houses across sectors.
But with government support in the form of concessional assistance being pulled off after economic liberalisation in the 90s and a subsequent slowdown hurting them, ICICI swiftly pivoted to the new universal banking model.
It reverse-merged the old development financial institution into ICICI Bank for which it had obtained a banking licence in the first round of banking licences in 1994.
In contrast, the IDBI leadership went the other way, though it too had a banking licence, dealing a blow to the professed aim of building a commercial banking ethos. The result: a middling bank.
The course correction by ICICI helped it emerge among the top three in the industry despite occasional blips.
What is instructive from this is not just the leadership qualities of the two institutions over time but the character of ownership.
With a dominant government holding, IDBI had to constantly look over its shoulders and seek the approval of bureaucrats and face the pressure of "directed lending".
The broader point in this is that as a dominant shareholder in IDBI, over time the government has been more of a value destroyer like in many other units it has either promoted or runs.
CONCLUSION
The encouraging part now is the recognition finally that reform of these institutions is better left to private hands, freeing up capital and resources for social sectors.
The sell-off of Air India reflected that. Over six decades, successive governments have baulked when it came to the final push. This will be as much of a political as well as a financial reform test for the Modi government.
