Govt may consider OFS option for raising public float in IDBI Bank

The government may consider selling a stake in IDBI Bank through the Offer-for-Sale (OFS) route to increase public shareholding, after the unsuccessful attempt to divest stake in the LIC-controlled lender, sources said.

Currently, the public float in IDBI Bank is only 5.29 per cent, limiting the scope of fair valuation. The remaining shares are with insurance behemoth Life Insurance Corporation of India (LIC), with a controlling stake at 49.24 per cent, while the Government of India (GoI) holding stood at 45.48 per cent.

Earlier this month, the proposed sale of a 60.72 per cent majority stake, held jointly by the government and the LIC, was scrapped after financial bids from two potential buyers reportedly fell short of the reserve price. Low free float restricts the scope for fair market valuation, and expanding this by 10 per cent or 15 per cent would make price discovery more reliable, sources said.

It can provide a reliable benchmark for valuation and further make the price discovery process transparent, they said, adding, strategic sale can be pursued even after one or two tranches of OFS.

As per the failed plan, both the government and LIC were to offload 30.48 per cent and 30.24 per cent stake, respectively. This is the second time that the government has wanted to privatise IDBI Bank since the first announcement made in 2016. The idea was first officially flagged in the Union Budget speech by then-Finance Minister Arun Jaitley in February 2016.

The first attempt to privatise the then state-owned IDBI Bank failed due to valuation concerns. However, the government later sold the controlling stake to LIC, which had been eyeing acquiring a stake in a bank to expand its bancassurance business model.

Subsequently, in January 2019, LIC acquired a 51 per cent controlling stake in IDBI Bank for approximately Rs 21,624 crore to rescue the lender from heavy bad loans as part of the disinvestment process.