The government is reaching out to the capital market regulator Sebi for a two-year relaxation in complying with the public shareholding norms in the case of IDBI Bank, according to an ET report. It added that the relaxation is expected to make the strategic sale of the bank more attractive to a potential investor as there will be more time for complying with the norm.
According to the rules, companies are required to have a public shareholding of at least 25 per cent within three years of being listed. However, state-owned entities are exempt from the minimum public holding rule. IDBI Bank is already listed now but after the privatisation, it will have to meet the minimum public shareholding norms within three years.
The two-year relaxation in meeting the norms will give the lender five years in total to comply with the rules.
The government currently owns a 45.48 per cent stake in IDBI Bank, while Life Insurance Corporation (LIC) owns 49.24 per cent controlling stake in the lender. In 2019, the state-owned life insurer infused Rs 21,624 crore into the bank. LIC is currently the promoter of IDBI Bank with Management Control and the government is the co-promoter.
On December 19, 2020, IDBI Bank was reclassified as an associate company due to the reduction of LIC shareholding to 49.24 per cent following the issuance of additional equity shares by the bank under a qualified institutional placement.
In Union Budget 2021, the Centre had announced a target of Rs 1.75 lakh crore from stake sale in public sector companies and financial institutions, including two PSU banks and one insurance company in FY22.
Following this, in May 2021, the Union Cabinet gave its approval for the strategic divestment and transfer of management control in IDBI Bank.
Recently, Bloomberg reported that the government is planning to sell at least 51 per cent of state-owned IDBI Bank. Shares of IDBI Bank have jumped 6.3 per cent in the past 12 months, raising its market valuation to about Rs 42,470 crore ($5.3 billion).
The government is likely to invite preliminary bids this month to sell its stake in state-owned IDBI Bank and the talks with the Reserve Bank of India (RBI) are in final stages.
It is not clear on what regulatory issues the government is holding discussions with banking and equity market regulators RBI and Sebi, respectively. “Since IDBI Bank would be first of its kind with regard to privatisation in the banking sector, we are expecting a lot of investor queries to come in once the Expression of Interest (EoI) is floated. The stake sale is unlikely to conclude this fiscal," according to PTI quoting an official.
“Strategic sale is uncharted territory. There are a lot of issues to be addressed, including an open offer to be made to the new buyer, mode of consortium formation and others," the official said, according to the report.