IDBI stake sale - Undervalued?

IDBI BANK STAKE TRANSFER:
Unanswered Questions

News Item: Cabinet Committee on Economic Affairs (CCEA), in its meeting held on 14th October 2026, approved Canada Inc (Parent entity of Fairfax Financial Holdings) as the strategic buyer for acquisition of 60.72% stake (comprising 30.48% of shares held by the government and 30.24% held by LIC) in IDBI Bank (the bank) for a sale consideration of ₹52,878 crore. For concluding this deal, the price per share of IDBI Bank is fixed at ₹81.  Once the deal goes through, the stake of the central government and LIC will come down to 15% and 19% respectively. While the remaining shares of the government in the bank will be sold through the open market, in line with standard operating procedure,  (SOP), LIC is given the discretion to handle its residual share, as per its internal procedures. Incidentally, this deal will be the largest foreign direct investment (FDI) in India’s financial sector, so far.

United Forum of IDBI Officers and Employees (affiliated to AIBEA and AIBOA) (United Forum) has protested that a public sector bank, (for all practical purposes as LIC, the major share holder is a PSU), is being sold stock, lock and barrel to private sector that too to a foreign investor. It has also questioned fixing the price at ₹81 per share, for carrying out the deal. 

Procedure Followed: Of the five parties, who initially submitted their expression of interest (EOI), four qualified as per eligibility criteria and only two out of the qualified submitted their techno-financial bids to become Qualified Bidders (QBs). The initial bids invited in 2025-26 fell short of the reserve price fixed at ₹94.42. Sealed invited Bids were called for again, from the same  two QBs, in FY27. To fix the reserve price, the government engaged two professional agencies, the first one to arrive at the valuation using Market Multiple Method and the second one to use the Asset Valuation Method. The average of the two valuations was fixed as the reserve price. As per this method, the reserve price was fixed at ₹75.99 per share. (₹18.43 less than the reserve price fixed last year). Since the winning bid from Fairfax Financial Holdings (Fairfax) of ₹81 was more than the revised reserve price, the CCEA approved Fairfax as the strategic buyer.

There are a few questions that remain unanswered, if one goes through the press note released by the Central Government.

1. Reserve Price fixed in two different periods: Compared to FY25, the bank net worth of the bank has gone up by ₹7386 cr. (after dividend pay out) due to retained net profit of ₹9513 cr. in FY 26. The book value per share is now (after Q2FY27) at ₹67.42. The business level has increased by ₹72000 cr. and stood at 6.01 lac cr. as on 31.03.26. Whether the two valuations, which helped in lowering the reserve price, factored in the above crucial factors, one that determines the PB (price to book) ratio and the other one - the total assets?

2. Intrinsic Value ignored: Fairfax acquired 51% of shares of CSB (Catholic Syrian Bank) in 2018, when CSB's shares were unlisted and it was continuously incurring losses for two plus years. From the news reports, one gathers that Fairfax improved its initial offer substantially to 140 per share, when the deal was closed. Against this background, IDBI Bank, which was incurring losses between 2016-20, was bailed out by the government and LIC by pumping in 43395 cr. (2017-18 to 2019-20). The entire money was used to set off losses. From 2021-22, onwards, after RBI lifted the bank out of PCA (prompt corrective action), the net worth grew gradually to reach a level of  67637  cr. as on 31.03.26. The increased business of 6.01 lac cr. (from  ₹3.52 lac cr. as on 31.03.20) and the CET1 at 26% are due to the efforts of the board, management and the employees of the bank. The bank has on date 2100 plus branches, 3000 ATMs and significant number of business correspondents. No one can fault the United Forum, if they plead that the intrinsic value comprising the business, network and the improved financial results after the Strategic Restructuring, through infusion of equity by LIC,  is totally ignored in both the valuations to arrive at the bid price.

3. When PNB Housing Finance tried to raise 4000 cr. by way of preferential allotment of equity shares and share warrants to Carlyle Group of companies and two others, SEBI informed the NBFC that the resolution is ultravires. Later on PNB Housing Finance dropped the idea of raising the money from Carlyle. Stakeholders Empowerment Services (SES), a proxy advisory firm, complained that the share price fixed for the above sale, did not factor in the book value of the share and also that the PE ratio in PSUs are low as compared to private peers, due to the number of shares traded being lower than others. The same argument holds good in the case of IDBI Bank as well, since its PE ratio at 10.02 is much lower than its private peers. The number of shares that  can get traded is also less than 5% of the total shares, since the government and LIC never traded their shares. So the market value of the share is bound to be low all the time and cannot be a factor in lower valuation.

4. Why the average of the two valuations be taken, when the norm of 'whichever valuation is higher' should have been the reserve price. The central government, unless desperate, should have followed 'whichever is higer' norm in fixing the reserve price.

5. RBI took an unusual step of classifying IDBI Bank as a private bank, though the government is holding 45% share and LIC, a PSU, holding 49%. Now that argument is used to off-load majority of the shares of the bank to a foreign investor. What is the guarantee that, if another PSB faces financial strain in future, the same route will not be used?

The questions should be answered. I support the United Forum and IDBI Bank Employees in this issue.

Regards

V.Viswanathan

CGM Retd., e-SBT

25th October 2026.