Kotak Mahindra Bank Back In The Race For IDBI Bank

Kotak Mahindra Bank is keen on acquiring IDBI Bank as due diligence for the government backed lender is entering its final stages. According to two people with direct knowledge of the matter, the Uday Kotak-owned lender is in advanced discussions with the government to submit a bid for IDBI Bank.

While the race for IDBI Bank had largely become a two-person contest with Emirates NBD and Fairfax Financial looking to buy over 60%, Kotak Mahindra Bank has increased the level of interaction with the government’s advisers in recent weeks, the people quoted above said.

The government is expected to invite final bids for IDBI Bank by the next quarter, the people said. By the end of the financial year, the government will likely have finalised the top bidder for IDBI Bank.

As part of the deal, the government is expecting bidders to shell out up to $5-6 billion (Rs 45-50,000 crore) for 60.72% equity stake. This would value IDBI Bank at $8-10 billion (Rs 75-88,000 crore).

For the price, the bidders would not only get controlling stake, but also 26% voting rights. Moreover, the government will also promise to reduce Life Insurance Corporation of India’s voting rights in IDBI Bank. This is to sweeten the deal, so the new owner can confidently buy the majority stake. India’s banking regulations limit voting rights to 26% for all owners of private banks, irrespective of the equity stake.

While the government owns 45.48% in IDBI Bank, India’s largest life insurer LIC owns 49.24%. Typically LIC’s holding is considered a proxy for the government. Even if the two together sell 60.72% equity stake, their cumulative stake will continue to remain close to 34%. This is higher than the voting rights of the new owner, according to the people quoted above.

While Kotak Mahindra Bank has a large domestic franchise, Fairfax Financial also controls CSB Bank in India, making the two significantly more competitive. Emirates NBD has recently received regulatory clearance to open a wholly-owned subsidiary in India, which could make it easier for the West Asian lender to buy an Indian banking franchise.

The government has been looking to sell controlling stake in IDBI Bank to potential buyers for some years now. Domestic and international bidders are both in favour to conclude the sale.

NDTV Profit had reported in July that the delay in proceedings was largely due to the share purchase agreement not being finalised. Now the government has overcome the hurdle, allowing for the process to move quickly.

A query mailed to Kotak Mahindra Bank on Tuesday remained unanswered.