The Reserve Bank of India has reportedly given its ‘fit and proper’ approval on bidders for IDBI Bank ahead of the Union Budget 2024 and all eyes are now on Finance Minister Nirmala Sitharaman.
The Narendra Modi government had set the ball rolling for divesting its stake in the development financial institution-turned bank in May 2021. Since then, the Centre has been waiting for the green signal from the RBI as the central bank assessed if the bidders met the fit and proper norms. These norms check if the bidders are compliant with regulations and are not under the scanner of other regulators.
The central bank has given its report on all but one bidder which happens to be a foreign participant, which did not share information and the overseas regulator too has not provided data, TOI on Thursday reported. With the current market cap nearing Rs 95,000 crore, the Centre could potentially realize around Rs 29,000 crore from the disinvestment. However, several observers have noted that the transaction terms are not very attractive.
ET Online has not been able to verify this report independently.
Shares of IDBI Bank were upbeat, as the scrip traded with gains of nearly 5 per cent as of 11:40 am while the benchmark indices were down 0.3 per cent.
The government and Life Insurance Corporation (LIC) collectively own 94.72 per cent of IDBI Bank, with LIC holding a 49.24 per cent stake and the government holding 45.48 per cent. Public shareholders account for the remaining 5.28 per cent.
Centre wants to sell 60.7 per cent stake in the bank, comprising 30.5 per cent of its own and LIC’s 30.2 per cent.
Market observers view IDBI Bank as a more straightforward divestment candidate since it operates as a private lender, with government stake increasing due to substantial capital infusion to manage bad debt-driven losses.
BUDGET 2024: Modi government’s divestment agenda in focus
Despite the Modi government’s ambitious privatisation agenda, targeting public sector companies such as BPCL, CONCOR, BEML, Shipping Corporation, IDBI Bank, state-run lenders, and an insurance company, there has been very limited progress. The privatization efforts have been virtually frozen for the last 18 months due to the upcoming general elections.
Recently, Oil Minister Hardeep Singh Puri reiterated that the government has no interest in paring stake in BPCL either. This decision marks a reversal from the 2020 efforts when the government aimed to divest its entire 52.98 percent stake in BPCL. Minister Puri cited BPCL’s strong financial performance as a crucial reason for maintaining state ownership.
The Modi government’s stance on privatisation is eagerly anticipated, especially as it now depends on coalition partners. The upcoming Union Budget is expected to provide key insights. With the recent rise in PSU stocks, the government is optimistic about meeting its disinvestment target of Rs 50,000 crore for the current financial year.
Despite the government’s repeated emphasis on exiting “non-strategic” sectors, the only significant success in the last 10 years has been the Air India disinvestment.
Modi likely to shun privatization plans?
Given the recent disappointment in the divestment sphere, the Modi government might depart from his privatisation agenda altogether, news agency Reuters recently reported. Instead, the government would focus on overhauling these state-run firms.
In an interim budget presented before the election, the government did not disclose any figures on stake sales for the first time in over a decade.
The 2021 announcement to privatize most state-run companies included two banks, one insurance company, and firms in the steel, energy, and pharmaceutical sectors, along with plans to close loss-making companies.
However, India has only managed to complete the sale of debt-ridden Air India to the Tata Group, while reversing plans for some others. Additionally, only a 3.5% stake in LIC has been sold, along with shares in a few other companies.
(With inputs from TOI)
