What's the Government's Next Move in IDBI Bank's Divestment? - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks

MEMBER'S LOGINX

     
Login Failure
   
     
   
     
 
 
 
(Please do not use this option on a public machine)
 
     
 
 
 
  Sign Up | Forgot Password?  
  • Home
  • Views On News
  • Jun 23, 2021 - What's the Government's Next Move in IDBI Bank's Divestment?

What's the Government's Next Move in IDBI Bank's Divestment?

Jun 23, 2021

Shares of IDBI Bank surged over 6% on the BSE today as the government took a step ahead for the strategic stake sale in the lender.

The government on Tuesday invited proposals to appoint legal and transaction advisers for the strategic disinvestment of IDBI Bank, boosting efforts to meet its ambitious Rs 1.8 tn disinvestment target for this fiscal year.

The proposal was approved by the cabinet committee on economic affairs in May.

It involves the sale of a majority stake in the bank jointly by the government and Life Insurance Corporation of India (LIC), along with management control.

While the transaction advisor will be required to undertake tasks related to all aspects of the proposed disinvestment, culminating in the successful completion of the transaction, the legal adviser will review and advise on all legal contracts and the regulatory norms and assist in securing approval and exemptions, wherever necessary.

The department of investment and public asset management, in the request for proposals (RFPs) issued, said the bids by interested investment banks, financial institutions, consulting firms and law firms should be submitted by 13 July.

However, the government has not yet finalised how much stake to sell and will do so in consultation with the Reserve Bank of India (RBI), LIC, and the appointed transaction advisor.

The stake offloaded could be anything between 26% (the minimum required to transfer management control) and the center's entire stake, which is currently at 45.5%.

--- Advertisement ---
REVEALED: 3 "Super Smallcaps" You Didn't Know About

You may not have heard of these 3 "super smallcaps" ever before...

The mainstream press doesn't cover them... Most brokers don't know about them either...

Stock like these 3 "super smallcaps" only come to your notice when they have rallied by hundreds or even thousands of percent... and are all over the news!

However, thankfully, our top analyst Richa Agarwal is ready to reveal their details at her Super Smallcaps Summit on 11th August...

Make Sure to Grab Your Free Spot Right Now
------------------------------

Stakeholders of IDBI Bank

The union government and LIC own 45.5% and 49.2%, respectively, in IDBI Bank, giving them a combined stake of more than 94%.

LIC is currently the promoter of IDBI Bank with management control after the government sold its majority stake to the state-run insurance giant in 2019.

However, the government and LIC may not fully sell their stakes and instead retain minority holdings post the strategic disinvestment.

LIC's board has passed a resolution to the effect that LIC may reduce its shareholding in IDBI Bank by divesting its stake along with strategic stake sale envisaged by the government with an intent to relinquish management control and by taking into consideration price, market outlook, statutory stipulation, and interest of policyholders.

At present, IDBI Bank is classified as a private sector bank by the RBI.

Watch Now: Get Details of Richa's 3 Dark Horse Stocks

What the government expects from IDBI Bank's privatisation?

The government expects a strategic buyer to infuse funds, new technology and best management practices for the growth of IDBI Bank.

It also expects the bank to generate more business without any dependence on LIC and the government.

The resources through strategic disinvestment of government equity from the transaction would be used to finance developmental programs of the government.

Financial performance for the year 2021

IDBI Bank reported an annual profit for the first time in five years at Rs 13.6 bn for 2020-21. It had reported a loss of Rs 128.9 bn in fiscal 2019-20.

In the March quarter, the bank reported a nearly four-fold jump in net profit to Rs 5.1 bn due to tax refund and higher net interest income.

While the bank's gross bad loans are still high at 22%, high provisions have helped bring down the net non-performing assets (NPA) ratio to 1.97%.

The bank's capital adequacy ratio was at 15.59% as of the end of March.

Its deposits rose 4% to Rs 2.3 tn in the financial year 2021. The share of low-cost deposits rose to 50.5% in March 2021 from 47.7% in March 2020.

--- Advertisement ---
Most Reliable Way to Identify Big Trends

The only way to make market-beating returns is to identify the sectors which could be the leaders of the next rally.

Watch this video to learn how to use Relative Strength Analysis to identify winning sectors and stocks... and generate potentially market-beating returns.

------------------------------

Covid-19 impact on banking sector

The Covid-19 pandemic has dampened business and consumer confidence, with the impact on reported impaired loans manifesting potentially over an extended timeframe, considering the various forbearance and relief measures by the authorities.

State banks have played a more active role in extending these measures than the private banks, which will make it more difficult to reasonably assess stress for the state banks, thus adding to the risk of weak earnings performance for a protracted period.

It should be noted that even though RBI categorised IDBI Bank as private sector bank, it continued to depend on government for capital. Now the government is trying to cut that supply by the change in management.

How the stock markets reacted to IDBI Bank's news today

Shares of IDBI Bank opened the day at Rs 40 on the BSE and Rs 40.3 on the NSE.

Its share price closed at Rs 39.4 (up 2.1%) on the BSE and the NSE.

At its current price, it is trading at a P/E of 29.2.

The share touched its 52-week high of Rs 55.8 and 52-week low of Rs 26.4 on 7 July 2020 and 27 January 2021, respectively.

Over the last 30 days, the IDBI Bank share price is up 1.5%. Over the last one year, the company's share price is up 19.6%.

About IDBI Bank

IDBI Bank as established in 1964 by an act to provide credit and other financial facilities for the development of the fledgling Indian industry.

It is a development finance institution and a subsidiary of Life Insurance Corporation (LIC).

Many national institutes find their roots in IDBI like SIDBI, India Exim Bank, National Stock Exchange of India, and National Securities Depository (NSDL).

Initially, it operated as a subsidiary of the Reserve Bank of India (RBI) and later RBI transferred it to the government of India.

On 29 June 2018, LIC got a technical go-ahead from the Insurance Regulatory and Development Authority of India (IRDAI) to increase stake in IDBI Bank up to 51%.

LIC completed the acquisition of 51% controlling stake on 21 January 2019 making it the majority shareholder of the IDBI Bank.

For more details about the company, you can have a look at IDBI Bank factsheet and quarterly results on our website.

You can also compare IDBI Bank with its peers.

IDBI Bank vs Indian Overseas Bank

IDBI Bank vs Federal Bank

IDBI Bank vs Union Bank

To know what's moving the Indian stock markets today, check out the most recent share market updates here.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...

Equitymaster requests your view! Post a comment on "What's the Government's Next Move in IDBI Bank's Divestment?". Click here!

  

More Views on News

IDBI Bank Gets Strategic Divestment Approval. What's Next? (Views On News)

May 6, 2021

Key points investors should know about IDBI Bank's strategic divestment approval.

IDBI BANK Announces Quarterly Results (2QFY21); Net Profit Up 109.4% (Quarterly Result Update)

Oct 26, 2020 | Updated on Oct 26, 2020

For the quarter ended September 2020, IDBI BANK has posted a net profit of Rs 3 bn (up 109.4% YoY). Sales on the other hand came in at Rs 47 bn (down 9.8% YoY). Read on for a complete analysis of IDBI BANK's quarterly results.

Here's Why IndusInd Bank's Net Profit Doubled in the June Quarter (Views On News)

Jul 28, 2021

All you need to know about the latest quarterly results of IndusInd Bank.

Axis Bank's Stock Falls as Results Disappoint on Asset Quality (Views On News)

Jul 27, 2021

Axis Bank's net profit more than doubles on a spike in other income and lower provisioning.

ICICI Bank's Quarterly Results Sends Stock to 52-Week High (Views On News)

Jul 26, 2021

ICICI Bank expects to maintain margins at the same level in coming quarter.

More Views on News

Most Popular

All You Need to Know About Primary and Secondary Markets

A look at the various types of primary and secondary markets and the key differences between them.

Make Startup Profits from Bluechip Stocks (Profit Hunter)

Jul 21, 2021

A 166-bagger stock can deliver even more gains in this decade.

These Are the Best Stocks to Own (Fast Profits Daily)

Jul 22, 2021

Find out what I think are the best kind on stocks to own in the market.

Cash the Crash in Gas Prices (Fast Profits Daily)

Jul 21, 2021

Get ready to profit from the coming crash in the price of natural gas.

Electric 2-Wheelers: The Megatrend has Begun (Profit Hunter)

Jul 20, 2021

The shift to electric 2-wheelers will be faster than expected.

More

Become A Smarter Investor
In Just 5 Minutes

Multibagger Stock Guide 2021
Get our special report Multibagger Stocks Guide (2021 Edition) Now!
We will never sell or rent your email id.
Please read our Terms

IDBI BANK SHARE PRICE


Jul 30, 2021 (Close)

TRACK IDBI BANK

  • Track your investment in IDBI BANK with Equitymaster's Portfolio Tracker. Set live price alerts, get research alerts and more. Get access now...
  • Add To MyStocks

COMPARE IDBI BANK WITH

MARKET STATS