Government unlikely to sell stake in IDBI Bank this fiscal

New Delhi: The government is unlikely to go for a strategic stake sale of the state-owned IDBI Bank during the current fiscal due to some procedural issues.

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“Strategic stake sale in IDBI Bank may not happen this fiscal due to some procedure issues but the bank can raise funds through QIP,” sources said.

Last week, the government gave its approval to IDBI Bank for raising Rs 3,771 crore during the year, by way of Qualified Institutional Placement (QIP), a move which will dilute its holding by about 26% in the lender. The government’s holding in the bank stands at 80.16%.

As per the existing norms, the government equity in a public sector bank cannot go below 52% to maintain the character of state-owned banks.

Finance Minister Arun Jaitley had earlier indicated a change in the characteristics of IDBI Bank where government will have a majority stake, but at the same time maintained an arm’s length distance. Citing the example of Axis Bank, he had wondered if IDBI Bank can follow that model.

The government indirectly controls 29.19% in Axis Bank through the administrator of the Specified Undertaking of the Unit Trust of India (SUUTI), the Life Insurance Corporation (LIC) and four other public sector general insurance companies.

Following the finance minister’s comment on IDBI Bank, the government had hired SBI Capital Markets to examine and suggest ways to bring down stake below 51% in IDBI Bank. It was supposed to draw up plans including strategic stake sale or merger with other private sector lender.

IDBI Bank came into existence, with Parliament passing the IDBI Repeal Act in 2003. In terms of provisions of the Repeal Act, IDBI has been functioning as a bank in addition to its earlier role of a financial institution.

Analysts feel that since IDBI Bank is not a nationalised bank, there is some operational freedom as far as stake dilution is concerned.

However, IDBI Bank in a regulatory filing said it has not received any communication from the government on this.

At the same time, bank unions have started opposing any possible move to bring down stake saying assurances were given by previous NDA government on the floor of Parliament that the government stake in IDBI Bank will not fall below 51%.

Posted by on January 4, 2016. Filed under Economy. You can follow any responses to this entry through the RSS 2.0. Both comments and pings are currently closed.