IDBI Bank narrowly escapes sale! The government halted the deal at the very last moment..

The process of divesting the government's stake in IDBI Bank—a move that has been in the works for nearly five years—will now likely have to be restarted entirely from scratch. According to a report by *The Economic Times*, the financial bids received by the government for the sale of the bank fell significantly short of the predetermined minimum price (the 'reserve price'). Consequently, the entire exercise was halted last week.

Where Did the Biggest Blunder Occur?

The primary reason for this setback lies in the methodology used to determine the 'reserve price'—a method that is now facing serious scrutiny. According to experts, excessive reliance was placed on the bank's share price in the stock market when establishing its minimum sale value. The critical catch here is that only 5 percent of IDBI Bank's shares are held by the general public. The government itself holds a 45.48 percent stake in the bank, while 49.24 percent is held by the Life Insurance Corporation of India (LIC). When such a limited number of shares are available for public trading in the market, their prices can easily be subject to extreme volatility. This significantly heightens the risk of market manipulation. It is believed that this flawed valuation is precisely why the bids received fell short of expectations. An key government panel is now set to conduct a thorough review of all these aspects shortly and will give the final go-ahead for restarting the divestment process.

The entire saga surrounding this privatization effort has had a direct impact on ordinary investors who purchased the bank's shares in the hope of making a profit. Earlier this year, on January 5—when speculation regarding the sale was at its peak—the bank's share price surged to a 52-week high of ₹118.38. However, as soon as news of the cancelled bids spread through the market, the shares witnessed a sharp decline of nearly 19 percent. On Tuesday, the stock tumbled to close at ₹74.28 on the National Stock Exchange (NSE). It has come perilously close to its 52-week low of ₹72, recorded on April 7, 2025, creating an atmosphere of unease among investors.

Strict Conditions for New Buyers?

Although the entire process is set to commence afresh, the government aims to execute it without any undue delay. During the previous round, Prem Watsa’s firm, Fairfax Financial, and Emirates NBD had submitted their bids. Officials have clarified that if these previous contenders re-enter the fray, they will not be required to seek fresh clearances from investigative agencies and regulators. This is expected to save a significant amount of time.

However, any prospective buyer—whether new or returning—must ultimately meet the "Fit and Proper" criteria stipulated by the Reserve Bank of India (RBI). Furthermore, the successful bidder will be required to obtain necessary approvals from statutory bodies such as the Competition Commission of India (CCI). Additionally, it will be mandatory for the acquiring entity to launch an "Open Offer," keeping in mind the interests of the bank's minority shareholders. Meanwhile, the government has also put an end to speculations regarding a potential merger of IDBI with another public sector bank; no such plan is currently in the works.

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