IDBI Bank’s proposed sale marks a significant milestone in the government’s efforts to reduce its stake in the lender and advance its broader privatisation agenda.
The Union Cabinet approved the sale of a 60.72% to Fairfax Financial Holdings’ subsidiary for Rs 52,878.08 crore. The Cabinet Committee on Economic Affairs (CCEA) led by Prime Minister Narendra Modi approved the Canadian entity as the strategic buyer.
IDBI was established in 1964 as the Industrial Development Bank of India to provide long-term financing to industries and support India’s industrial development.
In 2004, IDBI transitioned into a banking entity, expanding its activities beyond industrial lending to include deposits, retail banking and other commercial banking services.
The bad-loan crisis:
The IDBI Bank came under pressure aftr its non-performing assets increased during the broader corporate bad-loan crisis.
The Reserve Bank of India’s asset-quality review and tighter recognition of stressed loans also brought previously under-recognised bad assets into the banking system’s reported figures.
The bank’s recovery subsequently became linked to efforts to improve asset quality, strengthen capital adequacy and reduce the burden of legacy stressed loans.
Vijay Mallya default became crucial:
The Kingfisher Airlines loan controversy involving businessman Vijay Mallya also became part of the scrutiny surrounding the bank’s lending decisions. However, the episode was one element of a much broader asset-quality problem and should not be viewed as the sole cause of IDBI Bank’s financial stress.
LIC entered the frame:
One of the crucial turning points in the IDBI Bank saga came in 2019. India’s largest insurer, Life Insurance Corporation (LIC) acquired a controlling stake in IDBI Bank following a capital infusion.
LIC’s acquisition was intended to help stabilise the bank and support its recovery, and centre also retained a significant stake, leaving both the Centre and LIC with substantial ownership interests.
In May 2021, the Cabinet Committee on Economic Affairs approved the strategic disinvestment of IDBI Bank along with a transfer of management control.
The proposed Fairfax deal represents the next stage in IDBI Bank’s ownership transition. Fairfax Financial Holdings, an international financial services and investment group led by Prem Watsa, has been associated with the proposed acquisition.
Canadian billionaire Prem Watsa’s Fairfax Financial Holdings Ltd is set to acquire a controlling stake in IDBI Bank Ltd for about Rs 53,000 crore ($5.5 billion).