The government is working on plans A and B before the divestment – Exclusivity BQ
The reason that several options are put on the table is that each divestment path may present its own challenges.
With a balance sheet of Rs 2.9 lakh crore and a market capitalization of over Rs 59,000 crore, a strategic investor in IDBI Bank must have considerable financial weight.
In discussions with the Department of Investment and Public Asset Management, the RBI expressed some reservations about taking a single foreign investor stake in the bank, according to the second person cited above. The RBI might prefer a domestic investor or a consortium of investors, the person said.
Admittedly, the foreign direct investment limit for private banks is 74%. But the RBI approves all investors with more than 5% of a lender’s capital. It also conducts a proper assessment of all major investors.
In the case of stressed lenders, the RBI makes exceptions. For example, Fairfax took majority control of Catholic Syrian Bank, now known as CSB Bank, in 2018. The RBI also allowed the local branch of DBS Bank Ltd of Singapore to buy out Lakshmi Vilas Bank Ltd. Last year.
In the second scenario, when a consortium is allowed to bid, the question will be whether private investors will be allowed, the second person added. Currently, the RBI does not allow companies to own banks. However, an internal task force in November 2020 advocated allowing such apps. The banking regulator has not yet accepted this recommendation.
The option of merging the good IDBI ledger with another bank while selling its bad debts to NARCL has its own set of problems.
According to the first person cited above, NARCL was created with a five-year horizon and a bad loan portfolio of Rs 2 lakh-crore under its control. In addition, the government has already announced its intention to issue government guarantees worth Rs 30,600 crore to NARCL and it may not be willing to increase this amount of guarantee for a specific bank’s ledger. .
As of June 30, IDBI Bank had a gross bad debt pool of Rs 35,594 crore and net bad debts worth Rs 2,053 crore. He had deposits of Rs 2.2 lakh crore and advances of Rs 1.2 lakh crore.