IDBI Bank Divestment. Govt Pushing For Valuation Of Rs 64,000 Crore For State-Run Lender: Report

The Centre and the state-owned Life Insurance Corp. of India together own about 95 per cent in IDBI Bank

IDBI Bank logged a 25 per cent jump in net income from a year ago for the three months ended June.

Source : Getty

The central government is pushing for a valuation of around Rs 64,000 crore ($7.7 billion) for state-run IDBI Bank Ltd. in what could be the biggest sale of the government’s stake in a lender in decades, citing sources privy to the matter Bloomberg reported on Friday. Earlier this month, the government invited bidders for a 60.72 per cent stake in the Mumbai-listed bank.

The administration is seeking a premium of roughly 33 per cent as valuation based on IDBI Bank’s market value of about $5.8 billion as of Thursday close. IDBI Bank’s shares rose as much as 3 per cent on Friday after the Bloomberg News report.

According to one of the sources, the lender’s improved profitability could support the valuation target. Potential investors ranging from domestic and foreign banks to non-banking financial companies and private equity funds have expressed initial interest in the asset, the source added.

Bidders could get regulatory approvals and security clearances after November as the process proceeds, according to the person. A sale of the majority stake could be completed as soon as in the next fiscal year starting from April 1, the person said.

The Centre and the state-owned Life Insurance Corp. of India together own about 95 per cent in IDBI Bank.

The IDBI Bank stake sale is a test case for Prime Minister Narendra Modi, who has committed to divest from most large businesses India owns, and use the funds to bolster public finances. After years of trying, the government has only been able to privatise national carrier Air India and introduce outside backers to LIC, while its plans to sell refiner Bharat Petroleum Corp hit a wall as bidders struggled to find partners.

The government has been slow in raising funds from disinvestment this year. The annual budget earmarked Rs 65,000 crore from asset sales for the current fiscal year, but it has raised just over a third of the target, primarily from the $2.7 billion initial public offering of LIC in May.

IDBI Bank had the highest bad-loan ratio among banks in the country just four years ago. Rakesh Sharma, the bank’s chief executive officer, came out of retirement in 2018 to helm a revamp. About Rs 19,5000 crore of bad debt could be recouped, Sharma said in August.

The bank clocked a 25 per cent jump in net income from a year ago for the three months ended June. It’s due to release its second-quarter earnings on Friday.

IDBI Bank was penalised by the Reserve Bank of India (RBI) in 2017 with several restrictions on lending after its bad-loan ratio surged and capital ratios depleted.

LIC acquired 51 per cent of the lender in 2019 in a government bailout of the firm. The central bank removed sanctions on the bank last year paving the way for its proposed sale.