IDBI Bank sale: Clarity on sale glide path for buyers after EoI stage

The after-acquisition sale glide path for bidders looking to buy the Centre’s and Life Insurance Corporation (LIC) of India’s stake in IDBI Bank may be communicated to interested buyers after floating expressions of interest (EoIs) as the discussions with the Reserve Bank of India (RBI) are still under way.

Based on discussions between the Centre and the RBI, corporates will not be allowed to participate in the bidding process since the central bank regulations do not allow corporate ownership of banks, informed an official.

Currently, the RBI guidelines require promoters to reduce their shareholding to 26 per cent in 15 years. A special dispensation is being sought for the buyer to maintain continuity in running operations of the lender, against the present-day norms that require promoters to dilute their shareholding in the long term.

Before roadshows for the sale of stake by the Centre and LIC in IDBI Bank wind up, the government-appointed intermediaries had sought relaxations in the after-acquisition sale timeline in their deliberations with the banking regulator. The RBI had then communicated that its extant guidelines would prevail. However, discussions are back on the table to debate on feedback received from potential investors.

This discussion on the glide path for stake dilution is still ongoing with the RBI, and interested buyers will be informed after invitation of initial bids, and mostly before inviting financial bids, clarified the official.

However, interested buyers will gain clarity on the stake they will be allowed to hold in the preliminary information memorandum. This will include clearly specified conditions like non-regulated entities — such as private equity (PE) players being allowed to own more than 40 per cent of IDBI Bank.

Since the government and LIC are together looking to sell 51-74 per cent stake in IDBI Bank of the nearly 95 per cent held collectively, the EoI will specify to bidders whether they can acquire over 51 per cent stake in the bank through a competitive bidding process if they meet the eligibility criteria.

The sale of over 51 per cent stake by the Centre and LIC will also trigger an open offer, said the official.

Buying 25 per cent shares of a listed company triggers an open offer that requires the party to buy 26 per cent stake from the public.

In the case of IDBI Bank, about 5.29 per cent of shares are held by public shareholders. This category of shareholders will get an opportunity to exit when control of the lender will be handed over to a private player.

Corporate ownership

The RBI has communicated that since corporate entry is not allowed in banks, they will not be eligible to participate in the bidding process of IDBI Bank. Even as the universe of buyers eligible to participate in IDBI Bank’s strategic divestment process has been expanded to include non-regulated financial entities and PE firms, corporates will have to give the bidding process a clear miss.

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

What's at stake?

•   Discussion between Centre, RBI regarding glide path for stake dilution still under way

•   Current guidelines require reduction of shareholding to 26% in 15 years

•   Even as universe of IDBI Bank buyers has been extended, corporates will not be allowed to participate

•   RBI has maintained its present guidelines on restricting industrial houses’ entry into banks

•   Centre, LIC together looking to sell 51-74% in IDBI Bank