At least 51% of the state-owned IDBI Bank might get sold by the Indian government

Faria Mim September 5, 2022

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To accelerate the nation’s development, the Industrial Development Bank of India or IDBI bank was established.

In terms of government ownership, IDBI Bank is on par with nationalized banks and the SBI Group. One of the 27 commercial banks owned by the Indian government. The IDBI Bank is considered a bank owned by the Indian government. In terms of reach, it is the tenth largest development bank in the world. It has a 3000-crore authorized capital.

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Responsibilities of IDBI Bank

Some of the IDBI’s responsibilities are given below:

The foundation of the Small Industries Development Fund (SIDF) in May 1986, the National Equity Fund Scheme (NEFS) in 1988, and the Voluntary Executive Corporation Cell (VECC) for giving equity support to tiny and small-scale industries engaged in manufacturing, costing not exceeding Rs. 5 lakhs, are evidence that the IDBI has shown a particular interest in the development of small-scale industries. The IDBI manages the program through nationalized banks.
The IDBI has also begun a program of single-window assistance for the provision of term loans and working capital aid to new, small-scale businesses. According to available data, IDBI has only provided the small sector with around one-third of its total industrial aid.
Additionally, consulting, merchant banking, and trusteeship operations have been added to the IDBI’s list of services.

In addition to serving industrial clients, IDBI provides help to those who are looking for financing to launch a business. If someone wants to build on their agricultural plot of land, IDBI provides loans for that reason. There are many government-created accounts for women’s and children’s benefits as well.

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As of December 31, IDBI Bank’s gross advances increased 4.8% year over year to $1.67 trillion. As of December 31, 2021, the ratio of corporate to retail loans was 37:63, down from December 31, 2020, when it was 40:60. After Q3 FY22, the bank’s total deposits were down 0.8% year over year to 2.22 trillion.

A minimum 51% stake in IDBI Bank Ltd. may be sold by the Indian government. Over 94 percent of this bank is owned by the Indian government and LIC. Insiders claim that concepts are now being developed for share sale.

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The panel of ministers will make the final decision

According to the report, a panel of ministers will ultimately decide on the overall basis of the agreement. According to analysts, the government and LIC will try to understand the buyer’s interests by the end of September. The Reserve Bank of India will allow investors to buy more than a 40% stake.

The IDBI was established to give financing and other credit options to failing enterprises. Additionally, the IDBI was established to give financially struggling sectors access to loans. At first, the IDBI kept going as a division of the RBI.

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Although, representatives from the Indian Finance Ministry and IDBI Bank refused to give any additional information. Also so far, a LIC representative has refused to comment. Let me notify you that shares of IDBI Bank have increased 6.3% during the last 12 months. The lender now has a market worth of around $5 billion as a result (424.7 billion rupees).

The representatives of the IDBI Bank and the Indian finance ministry refused to comment, but the LIC official didn’t respond to requests for comment right away.

There will be a partial sale of government and LIC stakes in IDBI Bank and a transfer of managerial control. According to Bloomberg News, the Reserve Bank of India will give permission to investors to buy interests worth more than 40%. Entities governed by the regulator frequently require authorization to purchase holdings above that number, whereas non-regulated firms are limited to purchases of 10% to 15%.

The government needs to broaden the pool of potential buyers, rev up its privatization operations, and shore up its finances to generate 650 billion rupees through several disinvestments this year. Most of the $2.7 billion IPO by LIC has helped raise more than one-third of the goal amount.

While the government holds 45.48 percent of the bank, June 30 shows that LIC also has a 49.24 percent share in the company. Following the news, the price of IDBI Bank’s stock increased by more than 5% to a high of Rs 41 per share on the BSE.

Recently, it was uncovered that the Centre had contacted many international buyout firms and financial organizations, including the Carlyle Group, TPG Capital, and Fairfax Holdings, which is owned by Prem Watsa.

This was done to ascertain investor interest in purchasing most of the holdings in the lender, investment banking, and private equity executives that were directly held by the government and LIC.
Companies won’t be allowed to participate in the bidding process because corporate ownership of banks is prohibited under central bank laws.

Reports claim that loosening the conditions might increase the pool of possible purchasers, rev up the government’s intentions for privatization, and strengthen its finances as it attempts to collect Rs 65,000 crore from various divestitures this year.

LIC’s $2.7 billion initial public offering (IPO) took part remarkably in the government’s winning more than one-third of its aim.

edited and proofread by nikita sharma