The Centre plans to complete the privatisation of IDBI Bank by FY26, with the Department of Investment and Public Asset Management (DIPAM) managing the anticipated sale of a 61% stake. The current ownership of the bank consists of 45.48% held by the government and 49.24% by the Life Insurance Corporation (LIC).
The long-delayed privatization of IDBI Bank is gaining momentum as Kotak Mahindra Bank shows interest in acquiring a significant stake in the bank. This development introduces a new competitor alongside global investment firms Oaktree Capital and Fairfax, who had previously been considered potential buyers during earlier stages of the privatization process.
The NDTV Profit report outlines challenges facing potential bidders for IDBI Bank, primarily its substantial market capitalization of approximately Rs 1 lakh crore. The requirement to secure a 60 percent stake at this valuation poses significant upfront capital challenges, making a cash-only approach impractical for many investors. In contrast, Kotak Mahindra Bank, with a market capitalization of around Rs 4.14 lakh crore, is considering a merger structure that combines both equity and cash. This strategy would enable Kotak to use its equity currency as part of the acquisition cost, thereby alleviating some of the capital constraints associated with a cash-only deal.
If Kotak is confirmed as a party interested in IDBI Bank’s divestment, it could significantly reshape the competitive dynamics of the process. While Fairfax and Oaktree have already been involved for several months, the potential entry of a major domestic private bank like Kotak would add a new strategic layer. Kotak’s robust retail presence and history of effective mergers, particularly the integration of ING Vysya, position it as a strong candidate in the eyes of the government to guide IDBI’s future.
Earlier this week, the government announced that it will soon issue a request for proposal (RFP) for the sale of IDBI Bank, aiming to complete the privatisation by March 31, 2026. The current plan involves the government and Life Insurance Corporation (LIC) divesting 60.72 percent of their holdings, transferring full management to the buyer. After the transaction, the government will retain a 15 percent stake and LIC’s holding will decrease to about 19 percent. Initially, Emirates NBD and Fairfax were key contenders for the acquisition and conducted thorough due diligence; however, Emirates NBD withdrew after committing to a $3 billion investment in RBL Bank, leaving Fairfax as the main contender until Kotak recently emerged as a potential bidder according to media reports.
On Friday, Kotak Mahindra Bank announced a 5-for-1 stock split, where shareholders will receive five shares of Rs 1 each for every share of Rs 5. This move aims to enhance retail participation and make shares more affordable, marking the bank’s first stock split since 2010. Simultaneously, progress in the privatization process has been noted, with the government completing due diligence for a stake sale and planning to invite bids between October and December 2023. The reclassification of LIC from a “promoter” to a “public shareholder” is seen as a crucial step in facilitating governance for the divestment. Meanwhile, IDBI Bank’s shares closed down 2.53 percent at Rs 100.25 on the BSE.
