Moneycontrol: New Delhi: Friday, 22 July 2022.
The government, in response to a Right to Information (RTI) query filed by Moneycontrol, said it can't share the status of IDBI Bank’s privatisation or offer a timeline for the completion of the process as it was a matter of state's “economic interests”.
“Para 8 (1) (a) RTI act, 2005 exempts Government Authorities from disclosure of information on such issue related with strategic, scientific or economic interests of the State,” the department of investment and public asset management (DIPAM) said in its response dated July 19.
“Since the strategic disinvestment in IDBI is concerned with the economic interest of the Government of India (disinvestment), the information cannot be provided,” said the department that oversees divestment.
The response comes at a time when the government is understood to be in talks with a clutch of potential investors, including Canadian billionaire Prem Watsa’s Fairfax Financial Holdings, for IDBI Bank stake sale, as reported by Moneycontrol on July 19.
Besides Fairfax, a few institutional investors, too, are on the radar, sources said.
Delay in stake sale
The “strategic disinvestment” of the government stake in IDBI Bank is a long-standing issue.
As per DIPAM, strategic disinvestment implies the sale of a substantial portion of the government shareholding in a central public sector enterprise of up to 50 percent, or such higher percentage as the competent authority may determine, along with transfer of management control.
Moneycontrol reported on July 9, 2021 that the Cabinet Committee on Economic Affairs (CCEA) had given its go-ahead to the government and the Life insurance Corporation (LIC) to offload their entire stakes in IDBI Bank along with the transfer of management.
IDBI is classified as a private sector bank by the Reserve Bank of India (RBI), with the government's shareholding at 45.5 percent as of June, LIC's at 49.24 percent and the non-promoter shareholding is at 5.29 percent.
LIC completed the acquisition of a controlling stake in IDBI Bank in January 2019, making it the majority shareholder. Subsequent to the enhancement of equity stake by LIC, the RBI clarified that IDBI Bank stands re-categorised as a private sector bank.
Why the delay?
The delay in the sale of the government’s stake in IDBI Bank is primarily on account of the lender’s weak financial performance and high bad loans, analysts say.
IDBI Bank was among the early entrants on the RBI’s prompt corrective action (PCA) list, where lenders with the worst of asset quality, capital ratios and return on asset ratio (RoA) find a place.
The bank was placed under PCA in 2017 after its gross and net non-performing assets rose to 21.25 percent and 13.21 percent on March 31, 2017.
After a consistent improvement in its financial performance owing to the management's focus on cleaning up the books and using capital optimally to increase retail loans, the bank exited the PCA framework in 2021.
But, IDBI Bank’s gross non-performing asset ratio (GNPA) is still among the highest in the industry, analysts say. As of March 31, 2022, IDBI Bank’s GNPAs stood at 19.14 percent, while the net NPA ratio lowered to 1.27 percent on account of higher provisions or the amount set aside to cover the losses from bad loans.
The government, in response to a Right to Information (RTI) query filed by Moneycontrol, said it can't share the status of IDBI Bank’s privatisation or offer a timeline for the completion of the process as it was a matter of state's “economic interests”.
“Para 8 (1) (a) RTI act, 2005 exempts Government Authorities from disclosure of information on such issue related with strategic, scientific or economic interests of the State,” the department of investment and public asset management (DIPAM) said in its response dated July 19.
“Since the strategic disinvestment in IDBI is concerned with the economic interest of the Government of India (disinvestment), the information cannot be provided,” said the department that oversees divestment.
The response comes at a time when the government is understood to be in talks with a clutch of potential investors, including Canadian billionaire Prem Watsa’s Fairfax Financial Holdings, for IDBI Bank stake sale, as reported by Moneycontrol on July 19.
Besides Fairfax, a few institutional investors, too, are on the radar, sources said.
Delay in stake sale
The “strategic disinvestment” of the government stake in IDBI Bank is a long-standing issue.
As per DIPAM, strategic disinvestment implies the sale of a substantial portion of the government shareholding in a central public sector enterprise of up to 50 percent, or such higher percentage as the competent authority may determine, along with transfer of management control.
Moneycontrol reported on July 9, 2021 that the Cabinet Committee on Economic Affairs (CCEA) had given its go-ahead to the government and the Life insurance Corporation (LIC) to offload their entire stakes in IDBI Bank along with the transfer of management.
IDBI is classified as a private sector bank by the Reserve Bank of India (RBI), with the government's shareholding at 45.5 percent as of June, LIC's at 49.24 percent and the non-promoter shareholding is at 5.29 percent.
LIC completed the acquisition of a controlling stake in IDBI Bank in January 2019, making it the majority shareholder. Subsequent to the enhancement of equity stake by LIC, the RBI clarified that IDBI Bank stands re-categorised as a private sector bank.
Why the delay?
The delay in the sale of the government’s stake in IDBI Bank is primarily on account of the lender’s weak financial performance and high bad loans, analysts say.
IDBI Bank was among the early entrants on the RBI’s prompt corrective action (PCA) list, where lenders with the worst of asset quality, capital ratios and return on asset ratio (RoA) find a place.
The bank was placed under PCA in 2017 after its gross and net non-performing assets rose to 21.25 percent and 13.21 percent on March 31, 2017.
After a consistent improvement in its financial performance owing to the management's focus on cleaning up the books and using capital optimally to increase retail loans, the bank exited the PCA framework in 2021.
But, IDBI Bank’s gross non-performing asset ratio (GNPA) is still among the highest in the industry, analysts say. As of March 31, 2022, IDBI Bank’s GNPAs stood at 19.14 percent, while the net NPA ratio lowered to 1.27 percent on account of higher provisions or the amount set aside to cover the losses from bad loans.
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