After the government’s decision to sell a 60.72% stake in to Canada’s Fairfax Financial Holdings, speculation is rife that India’s financial services sector could see even more dealmaking as foreigners look to deepen their exposure.
The Cabinet approved the sale of a 60.72 per cent stake in IDBI Bank to Fairfax Financial Holdings on Wednesday for ₹52,878 crore. This is India’s biggest strategic disinvestment since the sale of Air India. It potentially opens a new chapter in the privatisation of state-controlled banks.
According to Bloomberg, Blackstone Inc. and other private equity firms are exploring a stake in the shadow bank Ltd. Meanwhile, Japan’s Mitsubishi UFJ Financial Group Inc. is studying ways to eventually gain majority control of Ltd., the report added.
Japanese and Middle East financial giants like Mitsubishi UFJ Financial and IHC Group have stepped up investments in Indian shadow lenders — which have relatively relaxed ownership and voting cap norms — betting on a credit boom in India and growing opportunities in retail and wealth management. Now the Canadians have joined the party.
Analysts told the media outlet that the interest suggests a robust appetite for financial services assets as the population of wealthy citizens expands and earnings of the middle class rise.
These moves could signal further stake sales, strategic partnerships and capital-raising deals in the sector, analysts were quoted as saying.
It would also test investor appetite for acquiring control of a large Indian bank amid stringent regulatory requirements and the complexities of managing a financial institution.
As per the report, India is discussing options to create large state lenders, which aligns with the government’s need to fund massive infrastructure and industrial projects in Asia’s third-largest economy.
Currently, only State Bank of India and HDFC Bank rank among the top 100 global institutions by total assets. India is also considering raising the foreign investment cap in state-run lenders from 20% to 49%, it added.
IDBI-Fairfax deal
Canada’s Fairfax Financial Holdings will acquire a 60.72 per cent stake in IDBI Bank for about ₹53,000 crore (USD 5.5 billion). Canadian billionaire Prem Watsa-led Fairfax will pay ₹81 per share, higher than the benchmark fair value of ₹75.99 determined by two independent valuation agencies, an official statement said.
Fairfax’s acquisition of a 60.7% stake in private-sector lender IDBI Bank shows that more overseas investors are seeking a foothold in one of the world’s fastest-growing major economies.
The deal is one of the country’s biggest in the financial sector since Prime Minister Narendra Modi’s government began consolidating state-run lenders in 2019.
The dealmaking comes as the Centre pushes for a banking system capable of supporting India’s transformation into a developed economy by 2047, with policymakers considering whether the country needs fewer but much larger state-run lenders.
The idea is to tap into foreign investment that brings capital, creates jobs, boosts productivity, and strengthens India’s economic growth as well as its global competitiveness.
According to a report, the government is likely to exceed the budgeted disinvestment target in the current fiscal year for the first time in eight years since 2018-19, aided by the ₹52,878-crore strategic sale of IDBI Bank.
Taken together, the current disinvestment mop-up and the likely proceeds from IDBI Bank put the stake sale proceeds as of today at over ₹82,000 crore.
The government had budgeted a disinvestment and asset monetisation target of ₹80,000 crore for the full fiscal year. So far, it has already raised ₹55,757 crore through minority stake sales in 9 public sector units, including the big-ticket ones like LIC and Coal India, as well as the strategic sale of Indian Medicines Pharmaceuticals Corporation Ltd and remittances from SUUTI, PTI reported.
The sale would follow the Tata Group’s acquisition of Air India, which was completed in January 2022. In October 2021, Tata won the bid for the national carrier with an offer of ₹18,000 crore, comprising ₹2,700 crore in cash and the assumption of ₹15,300 crore of debt.