India seeks 640b rupee value for IDBI Bank in stake sale

INDIA is pushing for a valuation of around 640 billion rupees (S$11 billion) for state-owned IDBI Bank in what could be the biggest sale of the government’s stake in a lender in decades, said a person familiar with the matter.

The government earlier this month invited bidders for a 60.72 per cent stake in the Mumbai-listed lender. The valuation target means the administration is seeking a premium of roughly 33 per cent, based on IDBI Bank’s market value of about US$5.8 billion as at Thursday’s (Oct 20) close.

Shares of IDBI Bank rose as much as 3 per cent on Friday after the Bloomberg News report.

IDBI Bank’s improved profitability could support the valuation target, said the source, who asked not to be identified as the information is confidential. Potential investors ranging from domestic and foreign banks to non-banking financial companies and private equity funds have expressed initial interest in the asset, the source added.

Bidders could get regulatory approvals and security clearances after November as the process proceeds, said the source. A sale of the majority stake could be completed as soon as in the next fiscal year starting from Apr 1, the source added. The federal government and the state-owned Life Insurance Corp of India (LIC) together own about 95 per cent in IDBI Bank.

A spokesperson for the finance ministry declined to comment.

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The IDBI Bank stake sale is a test case for Prime Minister Narendra Modi, who has committed to divest from most large businesses that India owns, and use the funds to bolster public finances. After years of trying, the government has only been able to privatise national carrier Air India. and introduce outside backers to LIC, while its plans to sell refiner Bharat Petroleum Corp hit a wall as bidders struggled to find partners.

Just four years ago, IDBI Bank had the highest bad-loan ratio among banks in the nation. Rakesh Sharma, the lender’s chief executive officer, came out of retirement in 2018 to helm a revamp. About 195 billion rupees of bad debt could be recouped, Sharma said in an interview in August. The bank reported a 25 per cent jump in net income from a year ago for the three months ended June.

IDBI Bank was penalised by the central bank in 2017 with several restrictions on lending after its bad-loan ratio surged and capital ratios depleted. LIC acquired 51 per cent of the lender in 2019 in a government bailout of the firm. The Reserve Bank of India removed sanctions on the bank last year, paving the way for its proposed sale. BLOOMBERG