IDBI Bank Sale: Corporates Cannot Be Bidding Consortium Members Due To RBI Norms

Due to current RBI regulations that forbid industrial firms from becoming bank promoters, large corporations are not allowed to join the consortium that wants to submit a bid for a 61 per cent interest in IDBI Bank, an official said.

An official said that due to current RBI regulations that forbid industrial firms from becoming bank promoters, large corporations are not allowed to join the consortium that wants to submit a bid for a 61 percent interest in IDBI Bank.

Current RBI regulations permit industrial houses to own a maximum of 10% in private sector banks, but they are not permitted to serve as promoters.

Last week, the government and Life Insurance Corporation (LIC) issued an Expression of Interest (EoI) for the sale of 60.72 percent of IDBI Bank. However, it prohibited large industrial houses from taking part in the strategic sale.

Large industrial/corporate houses have been defined in the bid document as industrial or corporate groups having assets of Rs 5,000 crore or more, with the non-financial business of the group contributing to at least 40% of total assets and gross income.

According to an official, the Reserve Bank of India (RBI) policy clearly states that corporate houses cannot be the promoter entity in any bank. Hence, they were not allowed to participate in the IDBI Bank transaction bidding process.

The official’s statement read that according to the IDBI Bank bid document, the consortium would be referred to as the promoter if they were selected as the winning bidder. According to RBI norms, allowing corporate houses as consortium members would make them members of the promoter group, which is not permitted.

The official’s statement read that, according to the IDBI Bank bid document, the consortium would be referred to as the promoter if they were selected as the winning bidder. According to RBI norms, allowing corporate houses as consortium members would make them members of the promoter group, which is not permitted.

Whether a prospective bidder is a member of a large industrial house or a business associated with one will ultimately be decided by the RBI.

The deadline for submitting an Expression of Interest to the IDBI Bank is December 16.

Once the EoIs are received, qualified bidders will be granted access to the data room, provided they pass the RBI’s “Fit and Proper” evaluation and receive security clearance from the Ministry of Home Affairs (MHA). Bidders submit financial bids only after conducting due diligence.

The financial bidding process, according to the official, is predicted to be completed by the end of March of next year, and the strategic sale will be concluded in the following fiscal year, which will begin in April 2023.

Bids may be submitted as a consortium or individually by private sector banks, foreign banks, non-banking financing firms with an RBI registration, alternative investment funds (AIFs) with a Sebi registration, and funds or investment vehicles established outside of India.

Bids may be submitted as a consortium or individually by private sector banks, foreign banks, non-banking financing firms with an RBI registration, alternative investment funds (AIFs) with a Sebi registration, and funds or investment vehicles established outside of India

However, it prohibited big businesses, corporate organizations, or individuals from taking part in the bidding process.

Bidders have a minimum net worth of $22,500 crore, and they are required to provide net profit data for three of the previous five years. In addition, 40 percent of the stock would need to be committed for five years.

The Life Insurance Corporation of India (LIC) will sell its 30.24 percent share in IDBI Bank, while the Centre will sell its 30.48 percent holding.

IDBI Bank currently has a 45.48 percent government stake, while LIC has a 49.24 percent stake. The remaining 5.2% of the shares are owned by the general public.

After the completion of this strategic sale, the government and LIC’s combined ownership in IDBI Bank would fall from 94.72 percent to 34 percent.

The government and LIC will cast votes in favour of any proposed merger or amalgamation of IDBI Bank with the bidder at any shareholder or board meetings.

The government and LIC will cast votes in favour of any proposed merger or amalgamation of IDBI Bank with the bidder at any shareholder or board meetings.

The Cabinet Committee on Economic Affairs approved the strategic disinvestment and transfer of management control in May 2021 after the IDBI Bank privatisation was first announced in the Union Budget for 2021–2022.

The RBI classified IDBI Bank as a private sector bank on January 21, 2019, as a result of LIC purchasing 51% of the bank’s total paid-up equity share capital.

The closing price of IDBI Bank shares on the BSE was 46.55, up 9.02% from the previous day. At current market prices, the sale of the 60.72 percent stake will bring in approximately 30,000 crores for the government. 

edited and proofread by nikita sharma