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On Wednesday, the long drawn out disinvestment of IDBI Bank was finally cleared by the Cabinet Committee on Economic Affairs. The “strategic buyer”, Toronto-based Fairfax Financial Holdings, will acquire 60.72 per cent of the bank for Rs 52,878 crore. This transaction, which will be the largest FDI in the financial sector, comes on the back of signs of growing interest in the sector. Emirates NBD’s purchase of a 60 per cent holding in RBL Bank, Sumitomo Mitsui Banking Corporation acquiring 24.2 per cent of YES Bank, and Mitsubishi UFJ Financial Group picking up a stake in Shriram Finance signal increasing foreign investor appetite for high-value transactions in this segment. This is a welcome development.
In recent years, IDBI’s financial position has improved — its gross NPAs (non performing assets) stand at 2.3 per cent, while its capital adequacy ratio is at 26.92 per cent. Fairfax, which also holds 40 per cent of CSB Bank, will have to either merge CSB Bank and IDBI Bank or sell its stake in the former, considering the regulatory approach. After the conclusion of this transaction, LIC and the government will hold a 34 per cent stake in the bank. The receipts will also boost the government’s coffers, which would help offset some of the expected overshooting of its budgeted subsidy bill. So far this year, the Centre has raised Rs 55,757 crore via disinvestment (including Rs 31,514 through LIC’s offer for sale) and Rs 6,367 crore through asset monetisation. Its disinvestment target has been budgeted at Rs 80,000 crore for 2026-27. This deal will bring in much-needed foreign capital, at a time when there has been considerable concern over both foreign direct investment and portfolio flows into the country, and the pressure on the rupee. Between April and July, while gross FDI flows stood at $43.8 billion, net FDI was considerably lower at $13.4 billion. Alongside, in the financial year so far, foreign portfolio investors have also taken out over $18 billion from equity markets.
Following the cabinet’s decision, the Centre should move forward on divesting its stake in other PSUs — Shipping Corporation of India Ltd, HLL Lifecare Ltd and NMDC Steel Ltd are some of those for which in-principle approval has been given, according to a report in this paper. It should not stop there. It must push ahead with a larger and more ambitious disinvestment programme.
