India central bank begins evaluating potential bidders for IDBI Bank: sources

THE Reserve Bank of India (RBI) has begun evaluating at least five potential bidders interested in picking up a majority stake in state-owned IDBI Bank, three people familiar with the matter told Reuters.

Kotak Mahindra Bank, Prem Watsa-backed CSB Bank and Emirates NBD Bank are among those that have submitted expressions of interest, two of the people said, speaking on the condition of anonymity because the talks are confidential.

Reuters was unable to confirm the names of the other potential bidders.

The Indian Ministry of Finance, RBI, IDBI, Kotak Mahindra Bank, and CSB Bank did not respond to requests for comment. A spokesperson for Emirates NBD Bank declined to comment.

The stake sale in the lender is the first major divestment across state-owned banks as part of a broader privatisation plan and could fetch the government 300 billion Indian rupees (S$4.9 billion) at the current market valuation.

The federal government owns 45.48 per cent of IDBI Bank, and is looking to divest a 30.48 per cent stake in the lender. This is taking place as the state-owned Life Insurance Corp of India (LIC) is also selling 30.24 per cent from its 49.24 per cent holding in the bank.

Expressions of interest – the first step in the stake sale process – closed in January, the three people said.

The potential bidders have since begun due diligence on the bank, according to the people, who added that financial bids are likely to be placed later this year.

RBI is also conducting a “fit and proper evaluation”, including extensive background and financial checks on the potential buyers, a crucial step before an investor is allowed to pick up a stake in a local bank, the people added.

Two of the people noted that potential investors have raised questions around the extent of government control in IDBI Bank after the divestment, since it will retain a 15 per cent stake and LIC, a government company, will have a 19 per cent stake.

“The government does not intend to have any management control,” one of the people said. “The government will take a call if a written submission to that effect is needed.”

Ashvin Parekh, a management consultant, said that buyers with an existing bank might be required to merge the operation with IDBI eventually, because RBI regulations do not allow the same investor to own two banking entities.

A merger would dilute the amount of equity held by the government and LIC, potentially reducing concerns over government control, he added.

Shares of IDBI Bank rose 4.5 per cent following Reuters’ report, while the benchmark BSE Sensex traded marginally lower. REUTERS