Under the existing rules, listed companies are required to hold a public stake of at least 25% within three years of being listed.
The bank is already listed but state-run enterprises are exempted from the minimum public holding rule. Once privatized, the bank will have to comply with this rule within three years. The relaxation is expected to make the strategic sale of the bank more attractive to the potential investor as there will be more time to comply with the norms.
In August 2021, the Finance Ministry inserted a new rule in the public listing norms in the Securities Contracts (Regulation) Rules, 1957.
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It exempted listed public sector firms from the mandatory 25% public float norm. At present the government and
(i) Together the bank holds 94.7% share while the remaining 5.3% is with the public.
The government has sought an additional two years, which would give the final strategic investor five years to comply with the minimum public holding rule.
If exemption is not granted, the government may also request SEBI to classify its shareholding as public shareholding to meet the MPS norms.
At present, the government and LIC are classified as promoters. They will need approval for reclassification of their shareholding status under the existing rules. A government official aware of the discussions said, “We have received information during roadshows with investors and also from merchant bankers. These suggestions have been shared with both banking and market regulators.” “The idea is to resolve all issues in advance so as to address the concerns of the investors, thereby leading to better valuations.”
Another official said IDBI is a unique case as it is no longer a state-run entity and yet comes under the minimum public shareholding exemption available to state-run enterprises.
“RBI has designated IDBI as a private bank. The government also treats it as a private sector lender,” he said. After LIC acquired majority stake in the lender, the Reserve Bank of India classified IDBI Bank as a private sector bank for regulatory purposes with effect from January 21, 2019.
The Department of Investment and Public Asset Management (DIPAM) may invite Expression of Interest (EoI) for IDBI Bank by the end of this month and will consider completing the privatization in this financial year.
The Government of India invested ₹27,000 crore in IDBI Bank between 1 April 2010 and 31 March 2021, taking the average cost of acquisition of the stock to approximately ₹60. The government holds 45.5% stake in LIC after disinvestment. LIC has invested over Rs 25,000 crore in IDBI Bank for its 49.2% in the last six years. Shares of IDBI Bank closed at around ₹43.45 on BSE Tuesday, with a value of around ₹47,000 crore.