IDBI Bank Sale Unravels Due to High Reserve Price, Government May Pursue Offer-For-Sale Route

The bid for a strategic sale of a 60.72% stake in IDBI Bank unravelled because of a steep reserve price of Rs 90,000 crore, derailing a process that began in March 2021, sources told FE. In strategic disinvestment , the reserve price—set confidentially by an Inter-Ministerial Valuation Committee (IMVC) based on independent assessments from the transaction adviser and valuer—acts as the minimum acceptable bid. KPMG India served as the transaction advisor for this deal. Many in the government were “surprised” by the “very high” reserve price, which suggested an overestimation of the bank’s valuation, sources said. IDBI Bank sale ended up as a missed opportunity to create a template for future bank privatisations. The bids received were “well below half the reserve price,” the sources added, without giving details. The process has remained confidential, which is standard in strategic disinvestment deals. While four entities were shortlisted, two were understood to have put financial bids, including Fairfax Financial Holdings. On February 6, the Department of Investment and Public Asset Management (DIPAM) received financial bids for a 60.72% stake—comprising 30.48% from the government and 30.24% from LIC—along with management control. At the time, IDBI Bank’s market capitalisation stood at about Rs 1.15 lakh crore, with shares priced at Rs 106.92 on the BSE. However, the reserve price implied the lender’s valuation of Rs 1.48 lakh crore—around 29% higher than the market value as of February 6. Since then, the stock has fallen to Rs 72.06 as of Thursday, reducing market capitalisation to Rs 77,482 crore, partly due to broader market weakness linked to the West Asia conflict. Although the transaction has failed, a review meeting will soon determine the next steps. Fresh bids are unlikely in the current volatile market environment. However, the government has made it’s intent clear to exit from the bank, technically a private lender, as it owns less than 51%. Analysts suggest the government may instead pursue an offer-for-sale (OFS) route to raise public shareholding from the current 5.29% to around 25% to meet the minimum public shareholding norm, improving liquidity and price discovery. Currently, LIC holds 49.24% and the government 45.48%. The failed sale increases pressure on the government to meet its FY27 disinvestment and asset monetisation target of Rs 80,000 crore. With rising fiscal strain due to the West Asia crisis, additional funds are needed to support fertiliser subsidies and fuel relief measures.