Reuters Reports: RBI Reviewing Potential Buyers for Majority Stake in IDBI Bank

RBI evaluating bidders for IDBI Bank majority stake, Reuters reports. Reuters stated that three sources familiar with the matter have indicated that the Reserve Bank of India (RBI) is evaluating a number of potential buyers who have expressed interest in purchasing a controlling share in IDBI Bank Ltd, which is owned by the government. Due to the confidentiality of the negotiations, two anonymous sources have disclosed that Kotak Mahindra Bank, CSB Bank with backing from Prem Watsa, and Emirates NBD are among the entities that have submitted expressions of interest for the stake.

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Reuters was not able to verify the identities of the other potential buyers. Requests for comment made to the RBI, Finance Ministry, IDBI, Kotak Mahindra Bank, CSB Bank, and Emirates Bank went unanswered.

This sale of stake in the lender is the first significant divestment in state-owned banks as part of a larger privatization strategy and has the potential to earn the government 300 billion Indian rupees ($3.66 billion) based on current market valuation.

According to three sources, the federal government, which owns 45.48% of IDBI Bank, plans to sell a 30.48% stake in the bank. The federal government currently holds a 45.48% stake in IDBI Bank and plans to divest 30.48% of its share in the bank. Additionally, state-owned Life Insurance Corp of India (LIC) intends to sell 30.24% of its 49.24% holding in the bank.

The sources indicate that the potential buyers have now commenced due diligence on the bank. They also mentioned that financial bids are expected to be submitted later this year.

As per the sources, the RBI is performing a “fit and proper evaluation” that includes rigorous financial and background checks on the potential buyers. This evaluation is a critical step before an investor can acquire a stake in a local bank.

The potential investors have reportedly expressed concerns about the extent of government control in IDBI Bank following the divestment. Two of the sources mentioned that the government would still retain a 15% stake, and LIC, a government company, would hold a 19% stake.

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One of the sources stated that the government has no plans to exercise management control over IDBI Bank. However, they added that the government would decide whether a written statement to that effect is necessary.

According to management consultant Ashvin Parekh, buyers who already own a bank may be required to merge their operations with IDBI Bank eventually. This is because RBI regulations prohibit the same investor from owning two banking entities. Additionally, Parekh mentioned that a merger could dilute the equity held by the government and LIC, which could potentially reduce concerns over government control.