New Delhi, Oct. 25 -- In the Budget speech of 2021-22, the Union Finance Minister announced the privatisation of two public sector banks and one general insurance company. It was a major policy decision in the disinvestment space, almost a Rubicon crossed. Much water has flown under the bridge since then, till the Government of India announced the disinvestment of 60.72% of its and LIC's stake in IDBI Bank in favour of a subsidiary of Fairfax Financial Holdings Ltd, a Canadian firm.
The deal involved a purchase consideration of Rs 52,878 crore, to be shared with LIC, along with the transfer of a controlling stake to Fairfax. The deal was concluded at Rs 81 per share against a reported fair value determination of Rs 75.99 per share. The Government of India and LIC now hold 15% and 19%, respectively, presumably with an understanding that no Board seat would be offered. Fairfax will have to reduce the promoter's stake to 26% as per regulatory requirements. However, the trajectory of reduction is not available in documents made public.
The amount received by the Government of India would be non-debt capital receipts and would constitute one of the larger disinvestments to date. It should help reduce the fiscal deficit this year. In 2017-18, the Government had announced a reduction of its stake in IDBI Bank to below 50%. Subsequently, LIC acquired 51%, now reduced to 19%. The Government has termed this exercise restructuring, although the transfer of control of a publicly owned asset to a private entity would, in economic literature, be termed privatisation. Nevertheless, it is more a matter of semantics now.
As somebody associated with the disinvestment process, I welcome the outcome, as it introduces new players, encourages competition and monetises public investment. However, the question remains whether citizens, through the exchequer, received due consideration. Let's examine the bank's balance sheet.
As of March 31, 2026, total deposits were Rs 3,47,163 crore, and net advances stood at Rs 2,59,274 crore. The CASA ratio was 44.59%, supported by a network of 2,174 branches and 3,011 ATMs. On an income of Rs 28,997 crore, the PAT was Rs 9,513 crore. The Net Interest Margin (NIM) was 3.77%, Gross NPA (GNPA) stood at 2.32%, and provision cover was about 100%.
These figures establish IDBI Bank as a highly profitable operation, steadily growing year-on-year. Its extensive branch and ATM network, GNPA of 2.32% and full provision cover reflect financial robustness. Return on assets (RoA) is 2.27%, while RoI is 18.43%, both healthy figures for prospective investors. A CASA level of approximately 45% reflects a low cost of capital. Investments and cash with the RBI are at good levels, while Tier 1 capital adequacy stands at 24.56%, compared with 13.34% for SBI and 15.5% for ICICI, both stellar organisations considered well capitalised. Clearly, IDBI is a solid, profit-making enterprise delivering good shareholder returns. Its management has performed commendably. A thin public holding of 5.45%, coupled with uncertainty over future ownership, has possibly depressed the share price.
This presents a huge opportunity for the new promoters. Capital adequacy of nearly 25% enables them to clean up doubtful assets and safely fold in their other entity, Catholic Syrian Bank (CSB), further expanding the bank's already formidable footprint. A relatively modest loan-deposit ratio of 73% provides scope to expand the asset base and income streams, helping offset a cost-to-income ratio exceeding 44%. Strong capital adequacy and profitability should also support future technology investments and write-offs. In the near term, improved performance could strengthen the share price without much difficulty. This could enable the new promoters, GoI and LIC to offload some holdings, deepen trading in the share and monetise their investments.
That brings us to whether the Government of India and LIC received adequate consideration. Between 2013-14 and 2019-20, the Government and subsequently LIC infused Rs 49,324 crore, building capital adequacy perhaps unmatched by any other bank in the country. Some sources suggest a higher infusion, but the order of magnitude remains important.
Murmurs of a downward revision of the reserve price have been heard. I do not have access to those documents, so I will not comment. DIPAM officials, in any case, do a thankless job.
However, the sale consideration of Rs 52,878 crore is barely equal to the capital infusion referred to above and may be even less in present value terms. This suggests that the buyers have acquired the bank at almost 'nil' franchise value, despite its profitability, strong returns and substantial capital adequacy. Perhaps the enterprise's future cash flows have not been adequately factored into the valuation.
Perhaps this sale can be explained away in procedural and technical terms. Fine. However, a huge question mark remains over whether the Government and LIC received full value for a profitable, stable, going concern. It sends a wrong signal in macroeconomic terms.
This transaction brings us back to whether it is better to sell an enterprise to a single private entity, causing considerable concentration of wealth, or spread shareholding widely among the citizens of the country. That would be a separate discussion.
Views expressed are personal. The writer is Chairperson of West Bengal's 7th State Pay Commission
Published by HT Digital Content Services with permission from Millennium Post.