Fairfax To Own 60.72% Of IDBI Bank But Voting Rights Capped At 26%; Here's What RBI Rules Say
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Fairfax-backed Canada Inc will acquire a controlling 60.72% stake in IDBI Bank, but its voting rights will be capped at 26%. The new promoter will also have 15 years to progressively bring its equity holding down to 26%.
Fairfax Financial Holdings-backed Canada Inc will acquire a controlling 60.72% stake in IDBI Bank, but its voting rights in the lender will be capped at 26% under banking regulations.
The new promoter will also have to progressively reduce its equity holding in IDBI Bank to 26% within 15 years of the acquisition, Department of Investment and Public Asset Management (DIPAM) Secretary Arunish Chawla said on Wednesday.
The clarification came after the Union Cabinet approved the ₹52,878.08 crore sale of a 60.72% stake in IDBI Bank to Fairfax-backed Canada Inc. The buyer will pay ₹81 per share and take management control of the lender.
Life Insurance Corporation of India (LIC) will also have to reduce its remaining stake in IDBI Bank. LIC's holding will fall to around 19% after the transaction and will have to be brought down further to 15% within two years.
The share purchase agreement is expected to be signed before the end of 2026, while the transaction is expected to be completed during the current financial year.
IDBI Bank Fairfax Deal Why Voting Rights Are Capped At 26%
Fairfax will initially own 60.72% of IDBI Bank after acquiring a 30.48% stake from the Government of India and 30.24% from LIC. However, the size of its shareholding will not translate into equivalent voting rights.
Canada Inc's voting rights in IDBI Bank will be capped at 26% under the Banking Regulation Act. RBI guidelines governing ownership in private sector banks also require a promoter to progressively reduce its equity shareholding to 26% within 15 years.
This means Fairfax will become the new promoter of IDBI Bank and take management control with a majority equity stake, but its ownership will have to be reduced over the longer term.
Canada Inc will have to present its credentials to the RBI and provide a roadmap showing how it plans to comply with the regulatory conditions.
“We are expecting clearances from the Reserve Bank of India to come through quickly and the deal will be closed this financial year,” Chawla mentioned
IDBI Bank Stake Of Government And LIC After Fairfax Deal
The government and LIC currently together own around 94.7% of IDBI Bank. Once the transaction is completed, the Centre's holding will fall to around 15%, while LIC will retain around 19%.
Both will withdraw their nominees from IDBI Bank's board after management control passes to Fairfax and will remain as public shareholders.
“We do a strategic transaction with a clear mind. We will get off the board with a new promoter coming in. There will be no contingent liability on us,” Chawla said.
LIC will have to reduce its remaining stake from around 19% to 15% within two years. The Cabinet has separately authorised the government to sell its residual 15% holding in IDBI Bank through the open market under the prescribed process.
Fairfax's ₹81-per-share offer values the 60.72% stake at ₹52,878.08 crore. The offer is also above the ₹75.99-per-share benchmark used to evaluate the qualified bids.
The transaction is set to become India's largest foreign direct investment in the financial sector once completed.
This article is for informational purposes only and should not be considered investment advice from Kotak Neo. For compliance T&C and disclaimers, Visit www.kotakneo.com/disclaimer
Rochelle Britto has spent 8+ years decoding India's markets, businesses, and consumer economy, reporting for ET Prime and Times Internet along the way, covering the stories behind the numbers.
A Mumbai native and perpetual planner of the next holiday, she stays far, far away from the eternal question, “Where are we going next?” When she's not chasing headlines, she's chasing new cultures, open roads, and a bit of quiet in nature.
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