Virendra Pandit
New Delhi: In India’s biggest bank deal, Canada’s Fairfax Financial is all set to buy the Industrial Development Bank of India (IDBI) Bank Ltd, the media reported on Wednesday.
IDBI Bank is classified by the Reserve Bank of India (RBI) as a private sector bank, not a public sector bank (PSB), though the government and the Life Insurance Corporation of India (LIC) still hold major stakes.
Proceeds from the IDBI Bank stake sale would provide a significant boost to the government’s goal of raising Rs. 800 billion.
Canadian billionaire Prem Watsa’s Fairfax Financial Holdings Ltd. will acquire a stake in IDBI Bank Ltd. for Rs. 528.78 billion (USD 5.6 billion), making it the biggest foreign investment in India’s rapidly growing financial services sector.
Fairfax Financial will own 60.72 per cent of IDBI Bank, according to Arunish Chawla, secretary at the Department of Investment and Public Asset Management, valuing the lender at around Rs. 871 billion. The sale is at an 11% per cent discount to Wednesday’s closing price of Rs. 90.4 per share, with the government and Life Insurance Corp. set to retain a total of 34 per cent stake in the lender.
Fairfax joins a wave of foreign firms expanding in India, drawn by the burgeoning wealth class and the world’s fastest-growing major economy. Japanese lenders alone spent more than USD 6 billion combined, buying stakes in Indian banks last year, including deals by Mitsubishi UFJ Financial Group Inc. and Sumitomo Mitsui Financial Group Inc.
Prime Minister Narendra Modi’s government has been looking to sell the Mumbai-based lender for several years, part of its efforts to pare state ownership in the banking sector. But the sale had often run into hurdles such as delays in securing regulatory approvals.
Fairfax, whose earlier bid for IDBI Bank failed to meet the government’s reserve price, was considering increasing its offer by a few rupees per share, Bloomberg reported.
The latest breakthrough in the IDBI stake sale will be seen as a shot in the arm for PM Modi who is seeking to convert India into a developed economy by 2047. To achieve his goal of boosting gross domestic product (GDP) 10 times to about USD 30 trillion by 2047, funding from banks must increase from 56 per cent to about 130 per cent of GDP.
India has been discussing ways to create stronger and larger banks, including more foreign participation in the country’s financial sector. It is also toying with the idea of merging some more state-run banks to create financial giants.
Accelerated Sales
In recent months, India has also accelerated stake sales in some of its largest state-owned companies, helping push disinvestment proceeds above the total raised in each of the past three fiscal years. The government is seeking to shore up finances as the oil-importing nation faces mounting fiscal strain from the energy shock spurred by the ongoing Middle East war, and the Russia-Ukraine conflict.
The acquisition of India’s sixth-largest private bank by assets significantly expands Watsa-owned Fairfax’s India presence. Fairfax already has investments in CSB Bank Ltd. and shadow lender IIFL Capital Services Ltd.
Fairfax, will have to merge or exit its 40 per cent stake in private sector CSB Bank Ltd., within two years of signing the share purchase agreement, Chawla said.
IDBI Bank, once burdened by heavy bad loans, has emerged from a major cleanup, and returned to profitability in recent years after capital support and aggressive recoveries helped it cut non-performing assets sharply.