IDBI Bank sale may be scrapped as bids fall below govt expectations

The government is likely to halt the proposed sale of IDBI Bank after the financial bids received for the lender were deemed unviable, according to a Bloomberg report, quoting sources.

The government and the Life Insurance Corporation of India (LIC) had planned to sell a combined 60.7% stake in the bank, transferring management control as part of the government’s broader privatisation programme.

However, the bids submitted reportedly fell short of the government’s minimum valuation expectations, prompting officials to consider scrapping or revisiting the transaction.

Why did the bids fall short of expectations?

Several structural factors appear to have weighed on investor appetite and pricing for the bank.

One major issue is valuation concerns. Analysts note that IDBI Bank is trading at about twice its forward book value, higher than comparable mid-sized lenders such as Yes Bank and IDFC First Bank. This makes it difficult for potential buyers to justify paying a control premium.

Potential investors also face additional liabilities and restructuring costs, including employee-related obligations that could require significant financial commitments after the acquisition.

Do regulatory limits affect investor interest?

Another factor affecting bids is India’s bank ownership rules, which cap voting rights of private bank shareholders at 26%, even if they hold a larger equity stake.

This means that a buyer acquiring a majority stake may still face restrictions in exercising full control over the bank’s decisions, reducing the attractiveness of paying a premium price.

Potential bidders such as Fairfax Financial Holdings and Emirates NBD, which were among the leading contenders, already have exposure to the Indian financial sector and other investment opportunities.

The prolonged sale process—launched in 2022—has also reduced urgency among investors, giving them greater leverage during negotiations.

What happens next?

The IDBI Bank disinvestment was expected to become one of the largest foreign investments in India’s banking sector, with the government aiming to complete the process by March 2026.

If the sale is paused or cancelled, the government may need to reassess the valuation, modify the transaction structure, or reopen the bidding process at a later stage.

The shares of IDBI Bank slipped 7% on Friday to ₹92.20 apiece on the national stock exchange. The private lender's stock has surged nearly 28% in the past year, outperforming the benchmark Nifty 50 index that has risen close to 4% during the same period.