Bullish mkt turns buoyant for IDBI Bank, govt

Keeping in view the overall positive buoyancy in the capital markets, it could be a win-win to both the IDBI Bank and the Government pertaining to stake sale, feel the analysts.

Not to mention that the BSE Sensex crossed the all-time high mark of 54,000 in the recent past.

The Department of Investment and Public Asset Management (DIPAM), which is handling the stake sale process of IDBI Bank, has invited bids from the prospective firms to become the transaction advisor for the same.

There are seven firms which are in the race for the same and they will be making presentations before DIPAM officials through a virtual meet to be held on August 1. They include JM Financial, E&Y, Deloitte, Touche Tohmatsu India, ICICI Securities, KPMG and SBI Capital Markets.

As of now, the central government and LIC together own more than 94 per cent. India's insurance behemoth LIC is currently having management control, with a 49.24 per cent stake, while the government holds 45.48 per cent in the bank. Non-promoter shareholding stands at 5.29 per cent. The exact quantum of stake dilution is yet to be disclosed by the government.

"Government of India is on a path to divest its stake out of IDBI Bank so in the past had already strategically transferred its holdings to LIC of India. With new age of banking services and products emerging and news participants entering this sector, IDBI Bank being a professionally driven bank, could enjoy more freedom to cater to customer choices," Gurunath Mudlapur, MD, Atherstone Capital Markets, told Bizz Buzz.

It needs to be seen how much stake the Government intends to offload at this stage. Considering the overall positive buoyancy in the capital markets, it could be a win-win to both the Bank and the Government, he added.

On its appointment, the transaction advisor would be required to advise and assist the government on modalities of disinvestment and the timing; recommend the need for other intermediaries required for the process of sale/disinvestment and also help in identification and selection of the same with proper Terms of Reference; preparation of all documents like Preliminary Information Memorandum (PIM), organize road shows, suggest measures to fetch optimum value. The advisor would also be supporting IDBI Bank in setting up of the e-data room and assisting in the smooth conduct of the due diligence process, will help position the divestment of GoI equity in IDBI Bank to organize road shows and to generate interest among the prospective buyers.

The Cabinet in May had approved the strategic sale of the entire stake of the government and Life Insurance Corporation (LIC) in IDBI Bank.

"This has been a priority for the government's divesture plan and the listing of LIC. The system liquidity is encouraging and market is sufficiently liquid, we can say this is one of the better times. There could be a challenge in offloading huge stake to incumbents or public," says Hemali Dhame, banking analyst, Kotak Securities.

"We expect sale in tranches and in partnerships. We need to wait and see whether any incumbent bank shows interest. However, NBFCs, payment banks who have been vying for a bank licence may evince interest. We may not rule out foreign participation too. It will have to be seen who the government and the RBI shall be comfortable with and on what terms," she added. It was in June when the government invited bids from reputed professional consulting firms/investment bankers/merchant bankers/financial institutions/banks, for facilitating/assisting DIPAM in the process of strategic disinvestment of IDBI Bank along with transfer of management control, till completion of the transaction.

The last date for bid submission was July 13, which was later extended till July 22.

IDBI Bank was placed under Prompt Corrective Action (PCA) by RBI in May 2017, slapping curbs on expansion, investments and lending. The bank has been working on a transformation strategy to improve its Profitability, Capital Adequacy, Deposit and Advances Mix, Asset quality and Provision Coverage ratio.

"As a result of various strategies, plus capital support from GOI and LIC, the bank has been able to improve its financial performance. The bank has been able to comply on the major PCA parameters with tier-1 capital at 12.22 per cent and CRAR at 14.77 per cent, Net NPA of 1.94 per cent and also leverage ratio at 5.75 per cent. Bank has a positive RoA for the last four quarters," the bank's MD & CEO, Rakesh Sharma, had told Bizz Buzz in an exclusive interaction on May 12 immediately after the RBI revoked PCA from the bank. The quantum of stake dilution would be declared before RFP (Request for Proposal) stage of the transaction.

In her Budget speech on February 1, Union Finance Minister Nirmala Sitharaman had said the process of privatisation of IDBI Bank would be completed in the current fiscal. The government aims to mop up Rs 1.75 lakh crore in the current fiscal from minority stake sale and privatisation.

Of the Rs 1.75 lakh crore, Rs 1 lakh crore is to come from the listing of LIC alone, while Rs 75,000 crore would come as CPSE disinvestment receipts. So far in the current fiscal the government has mobilised Rs 7,648 crore as disinvestment receipts.