The Ministry of Finance has said the reserve price for IDBI Bank’s strategic disinvestment remained unchanged during the second bidding round, which increased the bid-discovered price by Rs 3,917 crore, enhancing the transaction’s value for the government and Life Insurance Corporation of India (LIC).
In a clarification issued on Thursday, the Ministry said the second, or “best offer”, round was conducted under a procedure determined by the Core Group of Secretaries on Disinvestment (CGD), exercising powers delegated to it by the Cabinet Committee on Economic Affairs (CCEA).
The initial bidding round was conducted by the Department of Investment and Public Asset Management (DIPAM) during the financial year 2025-26. The Ministry said DIPAM’s internal practices were indicative guidelines that allowed procedural modifications to facilitate timely completion of complex strategic transactions.
“The reserve price was neither decreased, nor increased,” the clarification said, adding that the first round ceased to have effect after the initial bids were not approved.
The Ministry said the request for proposal explicitly provided that if the highest financial bid fell below the reserve price, it would decide the further course of action. Under a CCEA decision dated August 16, 2017, the CGD was empowered to take policy decisions on procedural issues and consider deviations necessary to implement approved strategic disinvestment transactions.
Explaining the valuation process, the Ministry said bidders independently assessed the bank and submitted confidential offers, while independent agencies carried out contemporaneous valuations to assess whether the bids were reasonable.
The CGD reviewed the entire valuation methodology in April 2026 before inviting best offers. Following the public release of IDBI Bank’s financial accounts for the year ended March 31, 2026, independent valuation agencies began revising their assessments in May.
The process remained “double blind”, with bidders unaware of the independent valuations and valuers unable to access the bids, the Ministry said. Only the CGD had access to both sets of information to assess the reasonableness of the offers.
Two independent advisers valued the bank using distinct methodologies. The business valuation was undertaken through the transaction adviser, which appointed professional experts to apply the market multiple method.
As suitable comparable transactions were unavailable, the experts used the comparable company method, taking listed public sector banks as the peer group.
The Ministry said IDBI Bank had changed from a government-owned banking company to a government-controlled banking company after LIC acquired a majority stake in 2019. Although the Reserve Bank of India subsequently treated it as a private bank for regulatory purposes, ownership remained overwhelmingly with LIC and the government, and market investors continued to value it as a public sector entity, the clarification said.
The asset valuation also accounted for an indemnity against disputed tax demands, a provision sought by qualified bidders to encourage higher offers. The Ministry said the potential liability under this provision was Rs 627 crore, compared with the Rs 3,917 crore increase in the bid-discovered price.
It described the liability as a low-probability event, saying reimbursement would apply only to any additional tax demand actually paid.
Referring to its earlier press note dated October 14, the Ministry said it had already explained why IDBI Bank’s volatile share price and narrow trading base were excluded from the valuation exercise.
The government and LIC will retain residual shareholdings, allowing them to benefit from any future increase in the bank’s value following its strategic restructuring, the clarification said.
The Union Cabinet approved the Rs 52,878 crore sale of a 60.72 per cent stake to a subsidiary of Canada’s Fairfax Financial Holdings on October 14.
Finance Minister Nirmala Sitharaman described it as a “strategic restructuring” rather than strategic disinvestment, noting that the government and LIC will retain stakes of 15 per cent and 19 per cent, respectively, after the transaction.
(PIB)
