IDBI Bank sale: RBI may not relax stake-dilution timeline for new buyer

Govt intermediaries sought exemptions in IDBI bank sale under RBI rules, which require promoters' shareholding to be reduced by 26% post acquisition

The Reserve Bank of India (RBI) is unlikely to grant any special dispensation to the new buyer of IDBI Bank over the post-acquisition glide path for reducing promoter shareholding in the long term.

The government-appointed intermediaries had sought relaxations in the RBI’s guidelines that require promoter shareholding to be reduced to 26 per cent in 15 years. In its deliberations with the government and its advisors, the banking regulator had communicated that its extant guidelines would prevail, said an official.

Queries sent to the RBI spokesperson did not elicit a response.

As promoters are required to reduce their shareholding in the long term, the Centre has been seeking some relaxation for the new owner to maintain continuity in running operations. Another round of discussions with the RBI is expected to take place soon after the roadshows with investors are complete, the official said. Requests made by investors, along with their feedback, would be discussed with the RBI again, said the official.   

With the Centre looking to invite expressions of interest (EoI) for strategic divestment of IDBI Bank by the end of July, deliberations with the RBI are expected to be over soon. 

The Centre has recently concluded roadshows in the US with senior government officials meeting potential investors to seek feedback on the sale.

With this feedback, the Centre will knock on the doors of RBI again to structure the transaction in the best way possible, that is acceptable to both regulator and investors. Extensive discussions are expected to take place as this is the first-ever strategic divestment of a bank, the official said. This is expected to be a test case for privatisation of two other public sector banks.

Discussions with the banking regulator have also involved allowing corporations to participate in the strategic divestment of IDBI Bank. However, the RBI has responded that its current norms for the banking sector shall prevail. 

The RBI, in November 2021, accepting several recommendations of an internal working group had said it was still examining one of the suggestions of the group on whether industrial houses be allowed to run banks.

Besides this, the request to remove the voting rights cap for promoters at 26 per cent currently was also declined by the RBI; the Centre has agreed to this. This means the voting rights of the new promoter shall be capped at 26 per cent, even if an investor picks up a 50 per cent stake or more in IDBI Bank. However, the Centre is clear that management control will be transferred to the new buyer, and the government and LIC will not interfere in the management of the lender even if they both continue to hold a residual stake. The new buyer will get powers to appoint the new management and key personnel, and implement the best management practices at the lender.

The government currently owns 45.48 per cent in IDBI Bank, while LIC holds a 49.24 per cent stake.

The government also has to finalise the eligibility criteria for investors, which has to meet the RBI’s fit and proper criteria and the exhaustive screening of shortlisted bidders interested in acquiring IDBI Bank.