Cabinet approves strategic disinvestment, transfer of management control in IDBI Bank

The Cabinet Committee on Economic Affairs, chaired by Prime Minister Narendra Modi, has given its in-principle approval for strategic disinvestment along with transfer of management control in IDBI Bank Ltd on Wednesday.

"The extent of respective shareholding to be divested by GoI and LIC shall be decided at the time of structuring of transaction in consultation with Reserve Bank of India," said the government in a statement.

To be sure, LIC Board had earlier approved stake dilution, relinquishing of management control in IDBI Bank.

Government of India (GoI) and LIC together own more than 94% of equity of IDBI Bank (GoI 45.48%, LIC 49.24%). LIC is currently the promoter of IDBI Bank with Management Control and GoI is the co-promoter.

LIC’s Board has passed a resolution to the effect that LIC may reduce its shareholding in IDBI Bank through divesting its stake along with strategic stake sale envisaged by the government with an intent to relinquish management control and by taking into consideration price, market outlook, statutory stipulation and interest of policy holders.

This decision of LIC's Board is also consistent with the regulatory mandate to it to reduce its stake in the Bank.

It is expected that strategic buyer will infuse funds, new technology and best management practices for optimal development of business potential and growth of IDBI Bank Ltd. and shall generate more business without any dependence on LIC and Government assistance/funds.

Resources through strategic disinvestment of Govt. equity from the transaction would be used to finance developmental programmes of the Government benefiting the citizens.

Last month, the RBI removed the LIC-controlled bank from its prompt corrective action (PCA) framework, which was imposed in May 2017, after it had breached certain regulatory thresholds, including capital adequacy, asset quality and profitability.

Presenting the Budget on February 1, Finance Minister Nirmala Sitharaman had proposed to take up the privatisation of two state-run banks along with IDBI Bank in FY22.

Meanwhile, IDBI Bank reported a nearly four-fold jump in its standalone profit after tax to ₹512 crore in the March quarter compared to ₹135 crore in the year-ago period on the back of an impressive 38% growth in its net interest income (NII).

The lender also turned profitable on an annual basis after five years as it reported a standalone profit of ₹1,359 crore for 2020-21 fiscal that ended in March as against a loss of ₹12,887 crore in FY20. On a consolidated basis, the lender reported a net profit of ₹547.93 crore for the January-March quarter as against ₹165.69 crore in the year-ago period.