IDBI Bank sale: Govt defends second bidding round, says process added ₹3,917 crore to deal value

The government has defended the valuation and bidding process for the proposed sale of IDBI Bank, saying the bid-discovered price increased by ₹3,917 crore against a potential tax liability of just ₹627 crore, enhancing the transaction value for the Centre and Life Insurance Corporation of India (LIC).

In a clarification issued on October 29, the Ministry of Finance said the increase followed the inclusion of additional value for disputed tax demands in the asset valuation, which were indemnified following a common demand from qualified bidders to encourage higher offers.

"The potential liability that could arise on this account was only ₹627 crores while the bid discovered price increased by ₹3,917 crores enhancing the value of the transaction for the GoI and the LIC," the ministry said. It described the possibility of the liability arising as low and said reimbursement would apply only if the additional tax demand was actually paid.

Defends second round of bidding

The ministry also defended the decision to conduct a second round of bidding, saying it was taken by the Core Group of Secretaries on Disinvestment (CGD) under powers delegated by the Cabinet Committee on Economic Affairs (CCEA).

The initial bidding round was conducted by the Department of Investment and Public Asset Management (DIPAM) in FY26 under its internal practices, which the ministry described as "indicative guidelines and not hidebound rules or regulations".

The foreword to the guidelines states that the suggested procedure is "not to be construed as a rigid, legal framework" and may require adaptation or modification for successful execution of transactions within a stipulated timeframe.

"Given the complex nature of strategic transactions, the indicative guidelines give flexibility to ensure cost and time spent in lengthy processes is not wasted," the ministry said.

Defending the second round, the ministry said there was no prescribed procedure within DIPAM to handle a situation in which the highest financial bid was below the reserve price. It cited Para 5.3.6(iii) of the request for proposal (RFP), which states: "In the event the Financial Bid of the Highest Bidder is lower than the reserve price, the Gol will decide the further course of action and the QIPs shall not subsequently question any decision taken by the Gol in this regard."

The ministry said the CCEA, in its meeting on August 16, 2017, had empowered the CGD to take policy decisions on procedural issues and consider deviations for effective implementation of strategic disinvestment transactions.

The CCEA decision provided for "empowering the CGD to take policy decisions with regard to procedural issues and to consider deviations as necessary from time to time for (the) effective implementation of decisions of CCEA".

"In due exercise of these powers, the procedure for the second or the best offer round was determined by the CGD itself," the ministry said. It clarified that "the reserve price was neither decreased, nor increased" and "the first round itself became functus officio after the initial bids were not approved".

Double-blind valuation process

The ministry said the CGD reviewed the entire valuation methodology in April 2026, before inviting best-offer bids. As the valuation comparator had to be contemporaneous with the bids, independent valuation agencies began revised assessments in May, after the March 31, 2026, financial accounts entered the public domain in April.

"The process remained double blind because the bidder did not know the valuation and the valuators did not see the bids," the ministry said. Only the CGD had access to both sets of information to assess the reasonableness of the offers.

The business valuation was undertaken by "two different advisers, independent of each other, using independent and distinct methodologies". The transaction adviser appointed professional experts to use the Market Multiple Method. Since suitable comparable transactions were unavailable, the Comparable Company Method was adopted, using all listed public sector banks as peers.

The ministry also explained that IDBI Bank was a government-owned banking company until 2019 but became a government-controlled banking company after LIC acquired a majority stake. The RBI subsequently treated it as a private bank for regulatory purposes, although the government and LIC continued to hold the overwhelming majority of shares and market investors valued it as a public sector entity.

The government also referred to its October 14 press note explaining why IDBI Bank's volatile stock price, given its narrow trading, was discarded as a valuation benchmark.

"The GoI and the LIC retain residual shareholdings to get further benefit from the upside that is expected from the value enhancement following strategic restructuring of the IDBI Bank going forward in future," the ministry said.

On October 14, the government approved the sale of a 60.72% stake in IDBI Bank to Canada's Fairfax Financial Holdings for about ₹53,000 crore, subject to requisite approvals. The transaction involves the Centre's 30.48% stake, valued at approximately ₹26,620 crore, and LIC's 30.24% holding, valued at around ₹26,440 crore.

Fairfax, led by Canadian billionaire Prem Watsa, will acquire the combined stake at ₹81 per share, above the benchmark fair value of ₹75.99 determined by two independent valuation agencies.

The Centre currently holds 45.48% of IDBI Bank, while LIC owns 49.24%. Following the proposed transaction, the government is expected to retain around 15% and LIC approximately 19%, subject to the final transaction structure.