IDBI up for sale loss, stock and bank

Loss-making IDBI Bank has been picked as the first public sector lender in which the government will divest its entire ownership, finance minister Nirmala Sitharaman told Parliament on Saturday.

Last year, LIC acquired a 51 per cent stake in IDBI Bank, following which the government now owns 47 per cent stake. The government now plans to sell its remaining equity in the secondary market.

“In the past few years, the government has taken concrete steps to make our banking system robust. However, there is a need for greater private capital. Accordingly, it is proposed to sell the balance holding of the government of India in IDBI Bank to private, retail and institutional investors through the stock exchange,” Sitharaman said in her budget speech.

The minister’s announcement comes even as the consolidation of some public sector banks into four larger lenders was announced in August last year and is now underway. It also follows the merger of Dena and Vijaya Bank with Bank of Baroda, effective April 1, 2019.

However, this is the first time since the 1969 bank nationalisation that the government would completely exit a public sector bank. It remains to be seen whether this politically sensitive plan is successful.

IDBI, or Industrial Development Bank of India (IDBI), was itself classified as a development financial institution (DFI) and converted into a bank only in 2004. With LIC buying the majority stake, it was reclassified as a private sector bank last year.

“This is just a plan right now; there are many moving parts. It will take a lot of time for the government to execute this,” said Lalitabh Srivastawa, analyst at Sharekhan, an arm of BNP Paribas.

IDBI Bank shares rose 10 per cent to end at Rs 37 apiece on expectations that the government decision would enhance governance and professionalism at the lender. However, it remains to be seen whether investors will be willing to own shares in a bank that still faces regulatory curbs, and has gross NPAs at 29.43 per cent of advances.

“As of today, it is very difficult for a bank like IDBI to get good valuations. The only positive from this is that the exit of the government from the bank could mean more flexibility and freedom for the CEO at the bank. It depends on how investors look at it because the bank’s majority owner LIC is also government-owned. We will have to see how this pans out,” said Mona Khetan, analyst at Reliance Securities.

IDBI Bank results are expected on February 4. In the quarter ended September 2019, the bank had reported a loss of Rs 3,459 crore as it increased provisions for NPAs.