No Legal Bar on Cutting Stake in IDBI Bank, Finance Ministry Says

The Union Finance Ministry said on Saturday that there is no legal bar under the IDBI (Repeal) Act, 2003, on the government reducing or selling its stake in IDBI Bank. The clarification came days after the Union Cabinet approved the sale of a 60.72% stake in the lender to a subsidiary of Canada’s Fairfax Financial Holdings for about Rs 52,878 crore.

What The Ministry Said

The ministry was responding to media reports that questioned whether statements made in Parliament in 2003 limited the government’s ability to dilute its holding. It said an amendment to restrict such dilution was moved during the debate on the 2003 law but was rejected, so it never became part of the Act.

The ministry cited the Delhi High Court’s December 17, 2018, judgment in All India IDBI Officers’ Association vs Union of India, which upheld the Centre’s power to dilute its stake. The court had said that “there is no ambiguity in the language of the IDBI Repeal Act, 2003” and that statements made in the House cannot override a law enacted by Parliament.

The Deal In Brief

Under the approved sale, the Centre will sell 30.48% and the Life Insurance Corporation of India (LIC) 30.24% of IDBI Bank. After the transaction, the government is expected to hold 15% and LIC 19%, with majority ownership passing to the strategic buyer.

The ministry also pointed to earlier Union Budget speeches. In 2016-17, the government said it would consider reducing its stake below 50%, and the 2021-22 Budget listed IDBI Bank among entities for strategic disinvestment. The sale is among the largest in the Centre’s disinvestment programme.

Why It Matters For Customers And Policyholders

For IDBI Bank’s depositors and borrowers, a change of owner does not by itself alter existing accounts, deposits or loan terms, which remain governed by RBI rules. The clarification is meant to settle questions about the legal basis of the sale before the deal moves forward.

LIC policyholders also have a stake, as the insurer is selling part of its holding and will receive a share of the proceeds. The ministry’s statement does not announce completion of the deal, and further steps are expected under the usual regulatory process. More updates are in our Daily Updates section.

Based on reporting by The Tribune and The Week.

Image: The Week / Shutterstock.