The conditions for the strategic divestment of IDBI Bank could facilitate its merger with other financial entities, including commercial banks, which might be looking to lap up a stake in the lender, a report by Business Standard stated.
The Centre is yet to come out with the preliminary information memorandum that would include eligibility conditions for the sale of IDBI Bank, however, Business Standard has learned that the criteria may allow banks to place bids subject to a merger plan approved by the Reserve Bank of India (RBI).
"The merger may be subsequent to the stake sale in the lender. This implies that the amalgamation could be allowed after the approval of the sale of stakes owned by the government and Life Insurance Corporation of India (LIC)," informed the report. The Centre presently owns 45.48 percent in IDBI Bank, while LIC holds a 49.24 percent stake.
Promoters or promoter entities of banks who wish to buy a stake in the lender may have to submit their bids after the approval of the merger plan, as the RBI does not allow one promoter to own two banks, an official told BS.
Merging with a financial entity is unlikely to be allowed as the first step of the process or as a means of divestment due to complexities that may arise with regard to a secondary sale and valuations, BS highlighted. Such an arrangement would mean the Centre getting shares of the merged entity which it would again have to divest, it further added.
The government sees banks and large non-banking financial companies as the most suitable contenders to participate in the sale of IDBI Bank, noted the report.
"In the case of NBFCs looking to participate in the process and subsequently merge with the lender, there could be a requirement for creating a non-operative financial holding company (NOFHC) according to the extant guidelines of the RBI. Presently, a NOFHC is necessary for a licence to be issued for universal banks in cases where individual promoters have other group entities. The structure and eligibility criteria would be discussed with the RBI soon, before coming out with the preliminary information memorandum and formally inviting bids," said the BS report.
It added, "for private equity and other investors, bidding through a consortium may be allowed subject to meeting the eligibility criteria. The eligibility criteria, expected to be in line with the RBI’s ‘fit and proper’ criteria, would soon be discussed with the central bank. At first, interested bidders would be screened based on this criteria -- to be laid out in consultation with the RBI; the shortlisted candidates would be vetted by the central bank."
The government is aiming to float its expression of interest (EoI) document for the strategic divestment of IDBI Bank by June end and has recently concluded its road shows in the United States.
As of now, a decision has been taken not to grant any special dispensation to the new buyer, and to cap voting rights at 26 percent, even if the investor picks up 50 percent or more stake, stated the report.
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