India’s bank privatisation offers cautious win-win

IDBI Bank

15/10/2026 06:45

The author is a Reuters Breakingviews columnist.  The opinions expressed are her own.
By Ujjaini  Dutta
BENGALURU, Oct 15 (Reuters Breakingviews) - After a decade of dithering, New Delhi looks poised to check the privatisation of IDBI Bank IDBI.NS off its to-do list. Canada's Fairfax Financial FFH.TO is set to buy 61% of the lender for 529 billion rupees ($5.6 billion) in India's largest cross-border bank deal. It offers the buyer’s founder, Prem Watsa, a chance to build a leading private sector institution if the government stays out of his way.
It was 2016 when New Delhi first floated the idea of cutting its stake in IDBI from 80% to below 50%. The government and state-controlled Life Insurance Corporation of India LIFI.NS will each offload a roughly 30% stake. They’ll partly cash out of the thinly traded and volatile shares at a 10% discount to the last closing price on Wednesday, the day before officials named Prem Watsa’s company as their preferred “strategic buyer”.
There’s no binding agreement but if the deal goes through, it'll be a remarkable full circle for a bank that was one of the hardest hit by a nationwide asset quality crisis. Around 2019, IDBI's gross non-performing loans stood at nearly one-third of its portfolio. That prompted the government to nudge LIC to pump in 216 billion rupees, or $2.3 billion at current exchange rates, to raise its 8% stake to 51% in 2019. Today, bad loans are just 2.3% of IDBI’s book.
Fairfax looks well placed to build on that repair. It’s paying a multiple of around 1 times IDBI’s trailing book value. A well-run private sector bank with better tech savvy like ICICI Bank ICBK.NS commands 2.5 times. Fairfax will combine IDBI with its non-bank lender $1.1 billion IIFL Capital Services IIFS.NS and insurer Digit to cross-sell banking, insurance and financial services products. For LIC, the deal crystallises a 7.44% annualised price return on its 2019 investment. That is less than ideal compared to the 10% yielded by India’s benchmark Nifty 50 stock Index .NSEI over the period but for New Delhi, it is not a terrible price to pay to stop a bank from going under.
The sellers will gain in two more ways. Offloading IDBI will bring some fiscal relief for the government firefighting surging oil prices and help it hit its annual target for divestment for the first timein seven years. They'll also have a chance to improve their returns: LIC and the government will withdraw from the board but retain a combined stake of 34%, higher than the 26% regulatory cap on voting rights Fairfax will be subject to as a private owner of an Indian bank. That offers plenty of upside so long as officials can resist meddling.
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CONTEXT NEWS
Canada's Fairfax Financial Holdings is set to buy 60.7% of India's IDBI Bank for 528.78 billion rupees ($5.56 billion), the Indian government said in a press release on October 14. 
The government named Fairfax as its preferred strategic buyer but no binding agreements have been signed. If a deal goes through, it would represent the largest foreign direct investment into the financial sector. 
New Delhi and state-controlled Life Insurance Corp of India will each sell a roughly 30% stake. The government will retain a 15% stake and LIC a 19% stake after the transaction. They will withdraw from the bank's board and become public shareholders. 
Fairfax will offer 81 rupees per share for IDBI Bank. The price is above the benchmark price of 75.99 rupees per share determined by the government based on fair valuations but a discount of 10% to the closing price of 90.39 rupees on October 14.
India first said it would consider cutting its stake in IDBI Bank from around 80% to below 50% in February 2016. LIC started increasing its stake around that time. In 2019, LIC became the majority owner. Around that time, the bank's gross non-performing loans amounted to nearly 30% of its total assets. 

(Editing by Una Galani; Production by Eileen Soreng and Aditya Srivastav)
((For previous columns by the author, Reuters customers can click on DUTTA/ujjaini.dutta@thomsonreuters.com))