The Union Cabinet on Wednesday approved the sale of a 60.72% stake in IDBI Bank 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.
“Once completed, the transaction will be the largest foreign direct investment (FDI) in India’s financial sector,” Union Minister Ashwini Vaishnaw said.
The transaction involves the sale of the government’s 30.48% stake and Life Insurance Corporation of India’s (LIC) 30.24% holding in IDBI Bank. Following the proposed transaction, the government will retain a 15% stake and LIC 19%, taking their combined holding to 34%.
IDBI Bank Ltd. is a scheduled commercial bank regulated by the Reserve Bank of India (RBI). Due to its poor financial health, the Bank required repeated infusion of capital, initially provided by the Government of India and later by the LIC.
On 5th May, 2017, the RBI put the IDBI Bank under the Prompt Corrective Action Framework and imposed several restrictions in view of its non-performing assets and losses incurred by the Bank. After considering the improvement in the Bank’s financial health, the RBI later, vide its letter dated 10th March, 2021, lifted the restrictions imposed on the IDBI Bank subject to certain conditions and continuous monitoring.
The decision of the CCEA was implemented through a two-stage, competitive bidding process supported by a multi-layered, collective decision-making mechanism consisting of the Inter-Ministerial Group (IMG), the Core Group of Secretaries on Disinvestment (CGD) and the Alternative Mechanism (AM) consisting of an empowered Group of Cabinet Ministers, according to statement released by Ministry of Finance.
For years, IDBI Bank have been suffering from poor financial health. The lender was put under a Prompt Corrective Action (PCA) framework in 2017, and in January 2019, LIC took over controlling stake in the bank by infusing Rs 21,624 crore into it and being allotted preferential shares in return.