The government will likely wait till the completion of its stake sale in IDBI Bank and watch investor response before going ahead with the privatisation of other state-run lenders.
The response and challenges will be assessed and, based on that, a strategy will be formulated for future privatisation in the financial sector, a senior government official told ET. “The privatisation of state-run banks and financial institutions is a long-term agenda. It is not a fire sale,” said the official. “Let IDBI be a successful transaction and then we will move on to other assets.”
The government is currently in the process of selecting advisers for the IDBI stake sale.
Bank of Maharashtra, Bank of India and Indian Overseas Bank are frontrunners to be privatised next.
may also be taken up based on its financial recovery. The Cabinet Committee of Economic Affairs has approved a proposal allowing both the government and LIC to sell their entire stake in IDBI Bank, along with the transfer of management to the new owner.
Bid to Maximise Value
But there is still no decision on how much of the stake will actually be sold. The government holds 45.5% of the lender, while Life Insurance Corporation owns 49.24%.
“While there is a blanket approval, the government is still to take a call on the quantum-based on various factors,” said the official. In strategic disinvestment, there is little value in selling stakes piecemeal, he said. “There is no halfway. Our initial attempt will be to maximise value.”
The Department of Investment and Public Asset Management had clarified in its response to queries received from potential transaction advisors that the amount of stake dilution would be declared before the request-for-proposal stage of the transaction.
“It will be determined as we go through the transaction and ascertain investor’s interest,” it had noted in its response.
The department had last month invited bids to appoint legal and transaction advisers for IDBI’s strategic disinvestment.
The government also wants that the potential candidates for privatisation are out of Reserve Bank of India’s Prompt Corrective Action (PCA) framework. Central Bank of India, Indian Overseas Bank and UCO Bank are under RBI’s PCA framework, which imposes certain restrictions on lending, management compensation and directors’ fees.
