NEW DELHI: The government on Wednesday approved the sale of a 60.72 per cent stake in IDBI Bank, jointly held by the Government of India and Life Insurance Corporation of India (LIC), to Toronto-based Fairfax Financial Holdings for ₹52,878 crore (around $5.56 billion), an official statement said.
Once completed, the transaction — cleared by the Cabinet Committee on Economic Affairs (CCEA) chaired by Prime Minister Narendra Modi — will be the largest foreign direct investment (FDI) in India’s financial sector.
The government will sell 30.48 per cent of its 45.48 per cent stake in the bank, while LIC will divest 30.24 per cent of its shareholding, currently at 49.24 per cent. This will leave the government with a residual stake of 15 per cent and LIC with 19 per cent.
The CCEA has also delegated powers to an empowered group of ministers, headed by Finance Minister Nirmala Sitharaman, to sell the government’s residual 15 per cent stake through the open market in accordance with the standard operating procedure. This will enable the government to monetise the value appreciation in the bank in the future.
LIC will be free to manage its residual shareholding in line with its internal procedures and regulatory requirements, the finance ministry said in the statement.
Sitharaman told reporters at a briefing that the government’s reform momentum would continue. In her 2021 Budget speech, the minister had announced the government’s policy of strategic disinvestment.
The deal marks the transition of an apex Development Financial Institution (DFI), set up in 1964 and converted into a banking company in 2004, to a privately controlled bank.
Indian-Canadian billionaire businessman Prem Watsa is the founder and chief executive officer of Fairfax Financial Holdings.
The government has so far raised ₹55,757 crore through disinvestment in the current financial year, against a combined Budget target of ₹80,000 crore for disinvestment and asset monetisation.
The transaction entails an open offer by the new investor, giving minority shareholders an exit option. Eventually, Fairfax will have to reduce its stake to 26 per cent to meet a regulatory requirement. “The strategic buyer and the RBI will work out a 15-year glide path for that,” a government official said, speaking on condition of anonymity.
LIC, the official said, will also reduce its post-transaction stake from 19 per cent to 15 per cent over two years.
To meet other regulatory requirements, Fairfax will have to either exit CSB Bank, in which it holds a 40 per cent stake through Fairfax India Holdings Corporation, or merge it with IDBI Bank within two years, the official explained.
Under RBI norms, an entity cannot own and operate two separate banks.
Two senior government officials told Business Standard that the government had held discussions with all IDBI Bank stakeholders and addressed all employee concerns. Employees had nothing to worry about, one of the officials said, adding that all employee service conditions would remain unchanged and pension benefits were fully funded.
“The proposed acquisition is strategically significant because it provides control of a large bank and could potentially complete the foundations of a diversified financial-services ecosystem in India,” said Pratik Shah, Partner and National Financial Services Leader at EY India. The deal was less about acquiring a bank and more about acquiring the distribution and funding engine for a broader financial-services franchise, Shah said.
Of the five parties that initially submitted expressions of interest, four had qualified and two of them submitted techno-financial bids to become qualified bidders. The ministry did not disclose the names of those bidders. Emirates NBD, the Dubai-based banking group, was also in the race, PTI reported on September 25.
The finance ministry said there was no predetermined benchmark for bidding in such transactions. Bidders independently value the enterprise and submit confidential bids in sealed envelopes. Independent agencies are engaged to value the enterprise, and their assessments are used to judge the reasonableness of the bids.
The initial bids, invited in FY26, fell short of the reserve price of ₹94.42 per share and were rejected. The bank’s share price was ₹108.12 on January 7, 2026, the last trading day before the invitation of initial bids on January 8. The government subsequently invited fresh bids in FY27, when the stock was trading at ₹70.38 per share on May 18, 2026, the last trading day before the invitation of best offers.
Given the stock’s volatility, the government relied on two independent valuation methods: Market multiples of public sector banks and asset valuation. The average valuation was ₹75.99 per share. The winning bid of ₹81 per share was higher than this benchmark and the fair-value estimates of both valuation agencies and was therefore considered reasonable, the finance ministry said.
The successful bidder will have to present its credentials to the Reserve Bank of India (RBI) in accordance with the fit-and-proper assessment conducted at the expression-of-interest stage. It will also have to submit a roadmap for complying with the prescribed regulatory conditions before the transaction is completed.
IDBI Bank shares ended trading at ₹89.85 apiece on Wednesday on the NSE, an 8.3 per cent rise over the previous close.
Source: Business Standard
