The All India Bank Officers' Association (AIBOA) has raised serious concerns over the proposed strategic disinvestment of Government and Life Insurance Corporation of India's (LIC) stakes in IDBI Bank. According to reports from The Hindu BusinessLine, the officers' body has urged the Department of Investment and Public Asset Management (DIPAM) to make a 'mid-course correction' to the proposed transaction involving Canada-based Fairfax Holdings. AIBOA General Secretary S Nagarajan questioned the sharp reduction in proposed reserve price to ₹81 a share from ₹110 a share indicated as recently as January-February, arguing there has been no adequate explanation for the roughly ₹17,000-crore difference. Former Secretary to the Government of India EAS Sarma has been equally critical, calling the disinvestment process 'highly non-transparent and non-competitive' and citing an 'unconscionably low' reserve price.
The Government and LIC plan to sell a combined 60.72 per cent stake in IDBI Bank, with the Government proposing to sell 30.48 per cent of its 45.48 per cent holding and LIC planning to offload 30.24 per cent of its 49.24 per cent stake. Under SEBI regulations, acquisition of this 60.72 per cent stake would automatically trigger a mandatory open offer, requiring Canada-based Fairfax Holdings to offer to buy at least another 26 per cent from IDBI Bank's public shareholders at the finalised deal price. However, as per The Hindu BusinessLine, there may not yet be any proposal before DIPAM to require such an open offer. Sarma has raised concerns that the proposed sale would raise 'scam-like transaction' concerns, reminding of a similar exercise with Central Electronics Ltd that the Centre had to abort to its embarrassment.
At the proposed price of ₹81 a share, the Government could raise around ₹26,620 crore by selling a 30.48 per cent stake out of its 45.48 per cent holding. LIC, which owns just under 50 per cent of the bank, is also proposed to sell a 30.24 per cent stake. Together, the transactions would amount to about ₹53,000 crore, or $5.5 billion. As reported by The Hindu BusinessLine, the association has called for details of every property owned by the bank, including its book value and market value, to be placed on the websites of IDBI Bank and DIPAM before disinvestment is taken forward. Sarma has criticised the Government for rushing to sell IDBI Bank equity at a price far below its potential market value, particularly when the bank owns land and buildings in prime urban locations across the country.
Sarma has flagged significant concerns about foreign ownership and banking control rules being violated in the proposed disinvestment. Referring to RBI guidelines of August 29, 2011, he argued that aggregate non-resident shareholding through FDI, NRIs and FIIs in new private-sector banks cannot exceed 49 per cent for the first five years from the date of licensing. Fairfax Holdings already has a majority stake in Kerala-based CSB Bank, and Sarma contends that the only contender for IDBI Bank already controls another Indian bank. He argued that 'DIPAM considers disinvesting IDBI in favour of Fairfax, the deal will stand ab initio invalid' due to this conflict of interest. Sarma also questioned DIPAM's decision to exclude Indian CPSEs from bidding while not excluding entities controlled by foreign governments and other foreign entities, calling such exclusion 'discriminatory'.
The proposed privatisation would permanently end SC/ST/OBC reservations and welfare benefits associated with a public-sector institution, creating uncertainty for about 9,500 employees from disadvantaged sections. The workforce includes 6,911 women and 884 differently abled employees. Sarma has cited Section 5(1) of the Industrial Development Bank (Transfer of Undertaking and Repeal) Act, 2003, which provides an assurance that IDBI employees' service conditions cannot be altered. He argued that the terms of disinvestment spelt out by DIPAM violate this provision, and that IDBI could claim additional value for human resources and value generated through participation in development schemes undertaken on behalf of the Government. The proposed strategic sale would have implications beyond the Government and LIC block transactions, with a successful strategic buyer required to make an open offer to public shareholders, potentially creating ownership issues if Fairfax emerges as the successful buyer.
