Why IDBI Bank shares are trading higher today

Shares of IDBI Bank rose over 4% in opening trade on Friday after the Securities and Exchange Board of India (SEBI) gave its approval for reclassification of the government’s shareholding in the bank as ‘public’ after its stake sale. The government and state-owned Life Insurance Corporation (LIC) of India plan to disinvest a 60.72% stake in IDBI Bank. Currently, the Centre and LIC of India are the co-promoters of the bank.

IDBI Bank share price opened 3.9% higher at ₹56.90, against the previous closing price of ₹54.75 on the Bombay Stock Exchange (BSE), in an otherwise muted broader market. In the first hour of trade so far, the banking stock gained as much as 4.5% to ₹57.25, while the market capitalisation increased to ₹60,858.60 crore. In comparison, the BSE Sensex was trading 158 points higher at 60,508 levels.

The largecap banking stock has almost doubled in the past six months, from its 52-week low of ₹30.50 on June 30, 2022, while it has risen 10% in the past one year. In the past one month, the counter dropped 3.5%, whereas it gained nearly 4% in a week. It touched a 52-week high of ₹61.05 on December 15, 2022.

IDBI Bank in an exchange filing on Thursday said the capital market regulator SEBI has allowed the government's shareholding in IDBI Bank to be reclassified as "public" post disinvestment on condition that its voting rights do not exceed 15% of the total voting rights of the bank. “The government’s intent to reclassify its shareholding as “public" must be specified in the offer document at the time an open offer is made by the new acquirer of the lender,” SEBI said in its order.

The government had filed an application with SEBI to  treat its residual stake in IDBI Bank as a financial investment and accordingly, reclassify it as public, as it would not exercise any control over the bank or have any special rights.

Last month, the Department of Investment and Public Asset Management (DIPAM) extended the deadline for submission of an Expression of Interest (EoI) for the privatisation of IDBI Bank to January 7, 2023, from December 16, 2022. Also, the deadline to submit physical copies of the EoIs was extended to January 14, from December 23.

The central government and LIC together plan to sell a majority stake in IDBI Bank and had invited bids from potential buyers in October. As part of the disinvestment plan, the Centre will offload a 30.48% stake in the lender, while the Life Insurance Corporation of India (LIC) of India will sell 30.24% in IDBI Bank. LIC and the government currently own 49.24% and 45.48% stakes, respectively, in IDBI Bank, while the remaining 5.29% shares are owned by retail investors. Following the stake sale, the government and LIC shareholding in the bank will decline to 34%, from the current 94.71%.

As per the eligibility norms, private sector banks, foreign banks, non banking finance companies, Alternative Investment Fund (AIF) are eligible to participate in the strategic sale of IDBI Bank. The large industrial/corporate houses have been barred from the bidding process. The financial criteria for submitting the EoI and for being considered for the RFP Stage of the transaction, a minimum net worth of ₹22,500 crore is needed.