The current guidelines of the Reserve Bank of India (RBI) restrict foreign ownership in new private banks. The central bank’s residency criteria for promoters applies only for newly setup banks and would not apply to an existing entity like IDBI Bank, the department of investment and public asset management (Dipam) said in a response to interested bidders’ queries. “The residency criteria would not apply to a consortium consisting of funds investment vehicle incorporated outside India,” it said.
The government and the RBI would also consider re-laxing the five-year lock-in period for shares if a non-banking financial company is merged into IDBI Bank, it said. The clarifications come ahead of a December 16 deadline to submit expressions of interest for a majority stake in IDBI Bank, one of the few lenders that the government is trying to offload its stake in.
The government and LifeInsurance Corporation (LIC) of India together hold a stake of nearly 95% in IDBI Bank and are looking to sell 60. 7%. At current prices, IDBI Bank has a market capitalisation of over Rs 63,000 crore and is worth more than Union Bank of India, which is much bigger in size. The bank’s share price has run up ahead of the privatisation and followingits return to profitability.
According to sources, the expression of interest will enable the RBI to conduct a ‘fit and proper’ study on the prospective bidders. The ones who do not qualify are likely to be sounded off, which will ensure that only those who qualify will be able to pick up a stake.
In terms of classification, IDBI Bank is already reckoned as a private sector bank following the legal amendments that were introduced to enable the LIC to buy a 50% stake. However, given the public sector ownership, it is still seen as a quasi-PSU by the market.
Meanwhile, IDBI Bank would continue its primary dealer business even if a foreign bank acquires majority stake and management control in the private sector bank, the finance ministry said on Tuesday.