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IDBI Bank sale: Corporates cannot be bidding consortium members due to RBI norms

 Corporates will not be allowed from being even a minority shareholder in consortium who want to bid for 61 per cent stake in IDBI Bank, as the current RBI norms which bar industrial houses from becoming bank promoters, an official said. As of now, RBI guidelines allow industrial houses to hold a maximum of 10 per cent stake in private sector banks, but they cannot be a promoter. Last week, the Central government and Life Insurance Corporation of India (LIC)  said that they will together divest 60.72 per cent stake in IDBI Bank. However, it barred large industrial houses from participating in the strategic sale. As per the bid document, 'large industrial/corporate houses' has been defined an industrial/ corporate group with assets of ?5,000 crore or more with the non-financial business of the group accounting for 40 per cent or more in terms of total assets/ gross income. An official said that corporate houses have not been permitted to participate in the bidding process for IDBI Bank transaction as the Reserve Bank of India (RBI) regulation clearly says that they cannot be the promoter entity in any bank. "As per the IDBI Bank bid document, the consortium, if they emerge as the winning bidder, would be classified as the promoter. Allowing corporate houses as part of the consortium member would mean they are part of the promoter group which is not allowed as per RBI guidelines," the official said.

 

The RBI would be the deciding authority on whether the interested bidder belong to a large industrial house or to a company connected to a large industrial house. The last date for putting in EoI for IDBI Bank is December 16. The Central government has made it mandatory for interested parties for IDBI Bank to provide details for security clearance from the Ministry of Home Affairs (MHA) in the first stage of the bidding process. While inviting EoIs from bidders, the Department of Investment and Public Asset Management (DIPAM) said interested parties (IPs) who clear the 'Fit & Proper' assessment by RBI and the security clearance by the government/MHA shall be notified as the Qualified Interested Parties (QIPs). Only the QIPs will get access to the data room of IDBI Bank for due diligence, following which they put in financial bids. The official said that financial bids process is expected to be completed by the end of March next year and the final strategic sale by early next fiscal beginning April 2023. Private sector banks, foreign banks, RBI-registered non-banking finance companies, Sebi-registered Alternative Investment Funds (AIFs), a fund/investment vehicle incorporated outside India would be allowed to submit bids, either individually or as consortium.

 

The net worth threshold for bidders has been kept at ?22,500 crore, and they must report net profit in three of the past five years. Besides, 40 per cent of the equity would have to be locked in for five years. The Centre will divest 30.48 per cent stake and Life Insurance Corporation of India (LIC) will offload 30.24 per cent in IDBI Bank. Currently, LIC holds 49.24 per cent stake in IDBI Bank, while the government holds 45.48 per cent stake. The remaining 5.2 per cent stake is with the public shareholders. The combined stake of the government and LIC in IDBI Bank would come down from 94.72 per cent, to 34 per cent after the conclusion of this strategic sale. In case, the bidder intends to amalgamate IDBI Bank with itself, the government and LIC will vote for such amalgamation or merger at the board or shareholder meetings. The announcement of IDBI Bank privatisation was first made in Union Budget of 2021-22, following which the Cabinet Committee on Economic Affairs gave in-principle approval for strategic disinvestment and transfer of management control in May 2021. IDBI Bank was categorised as Private Sector Bank by the RBI with effect from January 21, 2019, consequent upon LIC acquiring 51 per cent of the total paid-up equity share capital of the bank. Shares of IDBI Bank closed at ?46.55 apiece, up 9.02 per cent over previous close on the BSE. At the current market price, the sale of 60.72 per cent stake would fetch about ?30,000 crore to the exchequer.

 

 

-Mint, 17th October 2022

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