Budget 2020: Government Looks To Exit IDBI Bank Fully

The government plans to sell its remaining stake in IDBI Bank Ltd., which was bailed out by Life Insurance Corporation of India last year.

“In the last few years, the government has taken concrete steps to bring our banking system to be robust,” Union Finance Minister Nirmala Sitharaman said in her Union Budget speech today. “However, there’s a need for greater private capital. Accordingly, it is proposed to sell the balance holding of Government of India-owned IDBI Bank to private, retail and institutional investors through the stock exchange.”

The government, which has already sold 51 percent stake in the lender to India’s largest insurer, owns 47.11 percent shareholding in it, according to information available on the Bombay Stock Exchange. Following last year’s stake sale, the Reserve Bank of India reclassified IDBI Bank as a private lender. The proposal to divest shareholding in IDBI Bank was first brought up in 2015 by Sitharaman’s predecessor, Arun Jaitley, in that year’s budget. At the time, the government had decided to sell strategic stake to private investors—which fell through as the government was unwilling to cede control in the bank.

IDBI Bank had a very high bad loan ratio and low capital, leading to it being placed under the RBI’s prompt corrective action framework in May 2017. After LIC took over a majority stake in the bank, it has been trying to improve its financial position and exit the framework, so that the bank can resume lending without restrictions.

A former executive director of IDBI Bank said on the condition of anonymity that the budget announcement would have to be followed up with an actual stake sale. LIC is a passive investor and doesn’t truly direct the lender on exiting the stress it’s currently facing, the official said. If the government is truly going to divest its entire stake in the bank to an investor, according to the official, then one can hope that there will be some positive change.

The bank, in the quarter ended September, reported a net loss of Rs 3,459 crore and had a gross non-performing asset ratio of 29.43 percent—the highest for any Indian commercial bank. Its capital adequacy ratio and common equity tier 1 ratio stood at 11.98 percent and 9.27 percent, respectively.

Shares of IDBI Bank were trading up nearly 11.5 percent at 2:20 p.m.

Source: Bloomberg Quint