IDBI Bank shares tumble more than 7% after Cabinet greenlights 60.72% stake sale to Fairfax Financial

IDBI Bank shares tumbled more than 7% during the trading session on Thursday, October 15, as investors reacted to the Union Cabinet approving the strategic sale of a 60.72% stake in the institutional lender to Canada-based Fairfax Financial.

NSE data showed that IDBI Bank shares declined 7.8% to touch an intraday low of ₹83.30 apiece during Thursday’s market, in comparison to ₹90.39 apiece at the previous equity market close.

Trading activity surpassing 48 million equity shares across NSE and BSE combined triggered the high-volume losses during the market session on October 15, as investors showed active interest in the bank’s stock.

After a meeting on October 14, the Cabinet Committee on Economic Affairs (CCEA) approved Canada Inc. (parent entity Fairfax Financial Holdings) as the strategic buyer for the stake sale transaction for a total consideration of around ₹52,878 crore, as per the official filing.

Data showed that the 60.72% stake sale in IDBI Bank to Fairfax Group will comprise a 30.48% sale by the Government of India, and a 30.24% sale from the Life Insurance Corporation of India (LIC).

What do experts predict?

Analysts from US-based investment firm Jefferies said that the Fairfax Group’s move to purchase a 60.72% stake in IDBI Bank reiterates the theme of changing faces of the Indian financials.

The experts also predict that the strategic stake sale move will keep attrition levels high in the banking industry while keeping the competitive position of Fairfax dynamic in the market. Fairfax Financial also owns a stake in CSB Bank, IIFL Finance, and Go Digit.

“This is a secondary market transaction, accretive to India's fiscal & forex, at a 10% discount to the market price, and will lead to an open offer,” said Jefferies analysts. “Will keep attrition levels in the industry relatively high and may keep their competitive positioning quite dynamic,” they said.

Things to know about IDBI-Fairfax deal

As per the details of the IDBI Bank-Fairfax stake sale deal, both the Government of India and LIC will receive the proceeds of the transaction, to the tune of ₹52,878 crore, divided in the same proportion as the stakeholding sale.

With the 60.75% stake sale to Fairfax, the Government of India will retain a 15% equity stake in IDBI Bank, while LIC will hold a 19% equity stake in the lender, but both of the entities will remove their nominees from the bank’s board of directors and become public shareholders.

After the approval, Fairfax will now present its credentials to the Reserve Bank of India as per the ‘Fit & Proper’ assessment conducted at the EoI stage and submit a roadmap for compliance with the regulatory conditions prescribed as per the guidelines.

The official statement also highlights that Fairfax will pay ₹81 per share for IDBI Bank, higher than the benchmark fair value of ₹75.99 determined by two independent valuation agencies.

The IDBI-Fairfax deal marks the largest acquisition transaction in the banking space, emerging as a long-awaited effort of the government to privatise IDBI Bank and reduce state ownership of commercial enterprises.

The central government’s approval comes years after the IDBI Bank stake sale was first announced in 2022 but was shelved in March after bids fell short of the government’s expected sale price.

What’s the impact on banking sector?

The government predicts that the IDBI Bank stake sale deal is set to have a significant positive effect on the banking and financial sector of the Indian economy, as the lender will be able to generate funds without any dependence on government assistance post-privatisation.

“It is expected that the strategic buyer will infuse private capital, bring-in new technology and better management practices, which will help enhance its business potential and make it more competitive for both credit and deposit growth,” the Ministry of Finance said.

The Ministry also said that this will mark the largest FDI in the financial sector of our economy so far, and will help generate a positive sentiment for economic reforms, while improving the investment climate in the country at large.