- Fairfax must reduce its stake in IDBI Bank to 26% over 15 years per RBI rules
- Government retains 15% stake but exits IDBI Bank's daily management role
- LIC to cut its holding to 15% within two years, adding 4% equity to the market
Fairfax Financial Holdings will have to reduce its stake in IDBI Bank to 26% over 15 years, with the Reserve Bank of India (RBI) setting the glide path for the proposed dilution, Investment Secretary Arunish Chawla told NDTV Profit.
The requirement follows the government's approval of the strategic sale of IDBI Bank to Fairfax, marking a milestone in India's financial sector disinvestment programme. Chawla said the five-year lock-in period would apply before the buyer could begin offloading additional equity to public shareholders.
Under the proposed arrangement, the government will retain a 15% stake in the bank but will no longer have a nominee director or involvement in its day-to-day management. Life Insurance Corporation of India (LIC), which currently holds a larger stake, will have to reduce its shareholding to 15% within two years.
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LIC's stake reduction would bring an additional 4% equity into the market, helping improve the bank's free float and potentially supporting price stability, Chawla said.
The strategic buyer will also be required to make an open offer to minority shareholders in accordance with applicable regulations. The offer will be voluntary, allowing investors to either sell their shares or retain them.
Chawla said Fairfax would also have to address its existing banking interests and restructure its other financial services businesses in line with regulatory requirements.
Fairfax already owns Catholic Syrian Bank, which operates as CSB Bank. Under RBI directions, the buyer will have two years from the deal's closure to either merge CSB Bank with IDBI Bank or exit its existing banking entity and operate IDBI Bank as its primary banking business.
The regulator will also require the buyer to restructure its other financial services interests and IDBI Bank's subsidiaries, with the aim of bringing them under a more integrated structure.
Addressing concerns over the valuation, Chawla said the government was fully satisfied with the price discovery process, which involved assessing both the bank's fair market value and fair asset value.
He said the valuation exercise took into account IDBI Bank's fundamentals, tangible assets, banking licence, customer relationships and brand value. The benchmark price was determined using the average of the two valuation estimates.
The government expects the transaction to close before the end of the current financial year, Chawla said, adding that the deal could help the Centre exceed its budgeted asset monetisation targets.
He described the IDBI Bank sale as the largest strategic transaction undertaken by the government, alongside LIC's record public offer, and credited the Department of Investment and Public Asset Management (DIPAM) team for the outcome.
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