Banking Central | IDBI Bank divestment will set the tone for PSB privatisation – Moneycontrol

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Last week, the Union government said it had received multiple Expressions of Interest (EOI) for the strategic disinvestment of stake held by it and the Life Insurance Corporation of India (LIC) in IDBI Bank. State-owned LIC (49.2 percent) and the government (45.5 percent) are the largest shareholders in the bank.
Moneycontrol had reported on Sunday that Emirates NBD and the billionaire Prem Watsa-led Fairfax Group of Canada are likely to have submitted EOIs. This means that there is some progress on IDBI Bank’s privatisation nearly half a decade after the idea was debated.
Along with this, permission from the Securities and Exchange Board of India (Sebi) to reclassify the government shareholding in IDBI Bank as ‘public’ after the stake sale, and the government’s decision allowing foreign funds and investment entities to own more than 51 percent of the bank, has made the whole plan a workable idea.
Banking Central
To be sure, the process still has a long way to go since the Reserve Bank of India (RBI) needs to clear the names of the potential suitors based on the criteria for parties promoting banks.
Among the rumoured bidders, the name of Watsa’s Fairfax Group has been doing rounds for a while. Watsa, whose company also controls CSB Bank, is keen to see if there is any synergy between the Kerala-based lender and IDBI Bank, and whether the two can be combined later, Moneycontrol had reported on July 19.
Execution is key
Privatising IDBI Bank is key to the government’s disinvestment agenda. But PSBs (public sector banks) are dominated by heavily politicised employee trade unions that are opposed to privatisation. In the case of IDBI Bank too, trade union protests are likely.
All that’s happened thus far is the mega merger of 10 state-run banks into four in 2020. The government has not made any significant progress in privatisation despite repeated promises over the years.
In the 2020 Union Budget, Finance Minister Nirmala Sitharaman had announced plans to privatise at least two state-run banks. It remained on paper so far.
Apart from trade union troubles, there needs to be credible buyers who would be willing to experiment with eradicating deep-rooted legacy issues in these banks. While PSBs are struggling with legacy issues, private banks are gaining the market share.
In this backdrop, the outcome of IDBI Bank’s divestment bid will be crucial for the government to press ahead with the privatisation of other banks. A successful template can give confidence to the government to dilute stake in other state-run banks and attract more buyers.
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