New Delhi, Aug. 21 -- Canada's Fairfax Financial, a frontrunner to acquire the government's stake in IDBI Bank, is set to be allowed up to two years to consolidate its India bank holdings to smooth the acquisition, two sources familiar with the matter said.

A long-delayed sale of a majority stake in IDBI Bank, held by the federal government and state insurer Life Insurance Corp of India, is in its final stages.

The transaction, valued at more than $5 billion, would be the largest foreign investment in an Indian bank. It is also important for the government at a time when the Middle East war has strained finances and weaker foreign inflows have pressured the rupee.

Under Reserve Bank of India (RBI) rules, an entity cannot own and operat...