IDBI Bank Shares Tumble Over 7% as Govt Announces Rs 52,900 Crore Fairfax Deal

Noida, Oct 15 (APAC Media): Shares of IDBI Bank plunged more than 7% on Thursday after the Indian government announced the sale of a 60.7% stake in the state-owned lender to Canada-based Fairfax Financial Holdings for more than Rs 529 billion ($5.5 billion).

The deal, pending final regulatory clearances, is expected to be the largest foreign direct investment in India’s financial sector, the Ministry of Finance said on Wednesday.

The government said the bank had previously required repeated capital infusions because of its weak financial position. Following a period of recovery, it decided to sell a majority stake to a strategic investor.

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During the bidding process, the government assessed IDBI Bank’s average fair value at Rs 75.99 per share. Fairfax emerged as the winning bidder with an offer of Rs 81 per share, according to the ministry’s statement.

However, IDBI Bank shares had closed at Rs 90.39 on Wednesday, above the price offered by Fairfax, before declining sharply in Thursday’s trading session.

The transaction will require Fairfax to undergo a fit-and-proper assessment by the Reserve Bank of India (RBI), which will evaluate the company’s credentials before granting the necessary regulatory clearances.

Finance Minister Nirmala Sitharaman said the government was moving ahead with the divestment after helping restore the bank’s financial health.

“Having supported the bank’s recovery, we are now enabling its next phase of growth through the infusion of Foreign Direct Investment while retaining a minority stake,” Sitharaman said in a post on X on Wednesday.

She added that the investment reflected confidence in the country’s economic prospects, stating that “India’s growth story is strong, its economy is resilient, and the government’s commitment to reform is unwavering.”

The IDBI Bank deal represents a major step forward for India’s privatisation programme, which has repeatedly struggled to meet government disinvestment targets.

The finance ministry has accelerated its sale of stakes in state-owned enterprises this year, including Cochin Shipyard, Indian Railway Finance Corporation, NHPC and Coal India. In August, it raised around $3.3 billion through the sale of a 6.5% stake in Life Insurance Corporation of India, the country’s largest insurer.

The national capital has set a target of raising Rs 800 billion through disinvestment and asset monetisation in the current financial year, which began in April, after several years of falling short of its revenue goals.

The divestment push comes as the government faces mounting pressure on public finances and seeks to sustain economic growth amid currency weakness and fiscal constraints.

The Indian rupee remains among Asia’s worst-performing currencies. Over the weekend, the RBI introduced a series of measures to support the currency, marking its strongest intervention since the 2013 currency crisis.

RBI Governor Sanjay Malhotra said this week that policymakers would consider additional steps if necessary.

Fiscal indicators have also shown signs of strain. Excise duty collections declined 23% during the first five months of the financial year, according to ratings agency ICRA.

Meanwhile, the fiscal deficit reached Rs 7.1 trillion over the same period, equivalent to nearly 42% of the full-year target. ICRA warned last month that the deficit could exceed the government’s target by as much as Rs 1.4 trillion unless offsetting savings are identified.

Strong tax collections, however, have provided some support to the government’s finances. Gross direct tax collections total Rs 14.3 trillion ($149 billion) between April 1 and September 17, representing a 15.2% increase from the corresponding period a year earlier.

The IDBI Bank sale is expected to provide a significant boost to the government’s disinvestment receipts while bringing a major foreign investor into India’s banking sector, subject to regulatory approval.

-ENDS–

Disclaimer: This article is for informational purposes only and is based on publicly available information. APAC Media is not responsible for investment decisions or losses. Please conduct your own research or consult a financial adviser before investing.