The exit has impacted the finance ministry’s calculations, as issues around recovery of its investments are being discussed. This is also one of the reasons why it wants to hold a partial stake in the bank, as it hopes to recover some more investment by selling it when the share price improves, as per the people cited earlier. No decision has been taken on the potential stake after the bank’s privatization.
According to government and stock exchange data reviewed by ET, the government has invested ₹27,000 crore
Banks between 1st April 2010 to 31st March 2021. The data shows that the government has acquired 4.5 billion shares in IDBI Bank during this 11-year period. This brings the weighted average cost of acquisition to ₹60 per share.
IDBI Bank shares closed at ₹36.45 on Monday BSE, Assuming that the government sells the acquired shares at Monday’s closing price, it will receive around ₹16,500 crore, which means it will lose over ₹10,000 crore on its investment cost.
“The capital investment was done so that the banks do not violate any regulatory norms. It is believed that some stake should be retained as the financial position of IDBI improves further,” an official said.
The government is also of the view that the change in the performance of IDBI Bank in the last two years necessitated the demand for premium from the buyer.
,
has also indicated that he would not like to exit the bank completely unless he gets a substantial return on his investment,” the official said.
The government currently holds 45.48% stake in IDBI Bank, while LIC holds 49.24%. Based on its closing price on Monday, the bank is valued at just over ₹39,000 crore ($4.9 billion).
LIC has invested over Rs 25,000 crore in IDBI Bank in the last six years. Its average cost of investment was around ₹53 per share, as estimated by ET.
An executive aware of the government’s view offered a contrasting view, saying it would follow SEBI’s guidelines on floor pricing for preferential allotment while fixing the sale price.
People also pointed out that the government’s cost of acquisition of shares could exceed ₹60 as the purchase of IDBI Bank shares was funded by the bank issuing subscribed bonds. These bonds have a coupon that the government is still serving.
“If the interest payment on recapitalization bonds by the government is included, the cost of acquisition would be very high,” said an official with knowledge of the matter.
IDBI Bank exited reserve Bank of IndiaOutline of prompt corrective action for the financial year 2020-21. It has posted profits for ten consecutive quarters since the January-March quarter of FY20.