Privatization Of This Govt Bank Starts: LIC, Govt Will Sell Their Stakes To Private Firms

The Cabinet Committee on Economic Affairs (CCEA) has approved for IDBI Bank to be disinvested to private buyers. 

The government of India (GoI) along with LIC will dilute a certain extent of their stakes after consultation with RBI on the deal structuring.

Equity Held By Partners

The LIC board had resolved to reduce its share in the bank in order to give up its control on management bearing in mind the “price, market outlook, statutory stipulation and interest of policyholders”.

LIC, presently IDBI Bank’s promoter, holds a stake of 49.24% and the GoI, presently the co-promoter, holds 45.48% stake. 

Collectively they both own over 94% of equity in IDBI Bank.

LIC has made its decision in line with Insurance Regulatory and Development Authority of India’s (IRDAI) mandate in which it must reduce its stake below 15%.

The Next Steps

After the cabinet’s approval, the onus shifts to the Department of Investment and Public Asset Management (DIPAM).

DIPAM will then have to scout for buyers which fit RBI’s criteria and meet its requirements.

DIPAM will then use its authority to proceed with divestment and will appoint intermediaries to conduct the sale.

Responsibilities Of The New Buyer

Whoever ends up buying the stake will have to contribute with funds infusion, new tech and implementation of best management practices in the interest of growth of IDBI Bank. 

It will also have to generate more business without relying on LIC or the GoI for funds .

Even after the new buyer acquires the entire stake of the GoI, LIC will still remain as a co-promoter or a majority shareholder. 

This means LIC would still have influence on key decisions. 

Funds raised from the sale of stake will be used for financing developmental programmes of the GoI in the interest of citizens.

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