Recent reports on the aborted strategic sale of IDBI Bank have raised questions about the structuring and pricing of the offer. The strategic sale seems to have been scrapped after bids from the two prospective buyers — Emirates NBD Bank and Fairfax India — fell short of the reserve price. An earlier attempt to privatise IDBI Bank in 2016 fell through due to high valuations demanded by the Centre. Given the existing client base and business of the bank, it may not be too hard to find a strategic buyer wanting a foothold in the fast growing Indian banking industry. But the Centre should be more reasonable about the price and be open to giving full control to the buyer.
IDBI Bank has turned around its operations since LIC bought a majority stake for ₹21,624 crore in 2019 to bail out the bank. Asset quality has improved, with net NPAs at 0.18 per cent and gross NPAs at 2.57 per cent towards the end of December 2025. The bank is well capitalised with Tier 1 capital at 23.53 per cent. Business growth is steady with credit growth of 15 per cent and deposit growth of 9 per cent in the third quarter of FY26 compared with the same quarter last fiscal year. While net interest margin has been squeezed slightly due to RBI’s rate cuts, it still stands at a steady 3.52 per cent. Even so, there has been a sharp rise in stock price over the last six months, ahead of the proposed disinvestment. The IDBI stock has been ruling at about twice the levels of other mid-cap private sector banks. This market distortion needs to be recognised by the committee advising on reserve price for the disinvestment. If the stock price and market capitalisation were to be factored into the reserve price, it would be much higher than the fundamental value of the bank.
Advisers to the IDBI Bank disinvestment could have considered offering a higher stake to the strategic buyer. Offering 60.72 per cent stake, with the Union Government continuing to hold 15 per cent and the LIC 19 per cent, may not have been acceptable to the buyer, who may have been worried about undue interference in operations. The Centre and LIC can consider offloading their entire stake in IDBI Bank, as was done in some earlier strategic disinvestments two decades ago. This gives the buyer greater visibility on managing the business.
Alternatively, if the Centre is loathe to let go of control, it may be a good idea to divest partial stake through the offer for sale route. With the public shareholders holding only 4.6 per cent stake, the floating stock is quite small, leading to distortion in pricing of the IDBI stock. Increase in the floating stock can help improve price discovery and prevent stock price manipulation by speculators, which can aid pricing of future strategic sales. Broadly speaking, disinvestment should be seen as a structural reform exercise, and not a mere Budget entry to plug the fiscal deficit.
Published on March 24, 2026