The government will ask the Reserve Bank of India (reserve Bank of India) to consider giving to a potential buyer of IDBI Bank Certain relaxations for private banks to comply with regulatory norms, including a time-bound reduction in promoter holdings.
The government may also request the Securities and Exchange Board of India (Sebi) to give some flexibility to the strategic investor in IDBI Bank on the minimum public float criteria for listed companies, an official source said.
Currently in the pre-expression (EoI) roadshow for disinvestment, the Department of Investment and Public Asset Management (DIPAM) is seeking feedback from investors on the initial shareholding level with which they would be comfortable in the bank.
At present, Life Insurance Corporation (49.24%) and the government (45.48%) hold 94.78% stake in the lender.
While both are keen to sell their maximum stake, it is felt that if a buyer takes full or close to the entire stake of both, it will be a daunting task for him to meet the regulatory requirements. , Therefore, the potential buyer may be given an option to buy around 60% stake in IDBI Bank instead of the entire holding of LIC and the Centre, to make it easier for the acquirer to bring down the stake to the prescribed limit. 40% level in five years.
As per RBI norms last revised in November 2021, a promoter of a private sector bank has to maintain a minimum of 40% of the paid-up voting equity share capital of the bank for the first five years after the commencement of operations. RBI also has the discretion to ask the promoter to reduce the holding at the lock-in level of these five years or even earlier.
In an earlier instance in 2015, RBI had asked Bandhan Bank Promoter BFHL will reduce its stake in the bank to 40% in three years. In 2018, RBI had frozen Bandhan Bank CEO’s remuneration and barred the new bank from opening branches without his approval as the promoter failed to reduce stake as prescribed and finally, in August 2020, BFHL Fulfilled the promoter holding criterion by selling it. 7 investors hold 20.95% in the bank, including Singapore-based state investors GIC and Temasek.
Similarly, a strategic investor in IDBI Bank may not prefer to divest the stake in the initial 2-3 years, a period when he will set up a new management team, restructure the business and try to rebrand the banking company. .
Being practically a government-run bank, IDBI Bank is also enjoying relaxation on compliance with this norm of SEBI, but once it becomes a private bank, it may lose such privilege. Is.
There may even be a conflict between the two regulatory regimes. As IDBI Bank will come under a private promoter after the strategic sale, these privileges will cease and hence, these issues will need to be resolved with the regulators before the start of the bidding process, believes the government.
For example, if the government and LIC sell a total of 55% equity in the lender to a private investor, it will have to make an open offer to acquire the stake from minority shareholders, which could be around 60. , This means that in order to comply with SEBI’s norm of minimum 25 per cent public float, the promoter will have to bring down its stake to around 35% in three years, which is a clear disadvantage for potential bidders.
The combined holding of 94.78 per cent of the Center and LIC in IDBI Bank is about Rs 48,611 crore at current market prices.
DIPAM is also exploring whether the regulator will reduce its stake by five years to comply with the listing norms for strategic investor in IDBI Bank as well as RBI norms on promoter holdings in private sector banks. More on the general timeline.
While approving the IDBI Bank deal, the new promoter may have to commit to a stake-dilution program and follow the same to avoid penal consequences, the sources said.
After LIC acquired 51% in IDBI Bank in January 2019, the insurance regulator allowed it to reduce its stake from the regulatory requirement of 15% in due course under a special arrangement. RBI has given relaxation to LIC on meeting the requirement of reducing its stake to 40%.
After a gap of five years, IDBI Bank was back in the black with a net profit of Rs. 1,359 crore for FY21. It reported a 53% jump in standalone net profit at578 crore for the third quarter ended December 2021.
The success in the sale of IDBI Bank, though not a public sector bank (PSB), could be a sign of wider investor appetite for public sector banks with substantial debt-loss reserves.
PSBs are part of “strategic sectors” in which the government, under a new policy, will reduce the number of state-run lenders to less than a dozen now.