EAS Sarma disinvestment letter: share price will remain in focus on Wednesday, 21 October, after reports revealed that former civil servant and activist EAS Sarma has written to the President of India, urging her to reconsider the Centre’s decision to divest its stake in IDBI Bank.
shares ended Monday’s session on a negative note, closed 2.23% lower at ₹84.12 apiece on 19 October.
IDBI Bank stake sale: What’s inside EAS Sarma’s letter to Indian President?
According to a report by Hindu BusinessLine, Sarma argued that the social costs of the move “far exceed the perceived social benefits.”
Sarma pointed out that the President holds equity shares in Central Public Sector Enterprises (CPSEs) on behalf of the people.
“I seek your intervention in directing the government to review CPSE disinvestment in general and IDBI disinvestment in particular,” the letter said, as per the report.
The report noted that the President of India holds equity stakes worth ₹4,50,740 crore across 475 Central Public Sector Enterprises (CPSEs), which collectively employ 7,81,552 people. These companies generate an annual net profit of ₹3,08,674 crore and distribute dividends amounting to approximately ₹1,38,503 crore each year.
In his letter, Sarma urged the President to order an independent inquiry into the “legality and prudence” of the proposed IDBI Bank disinvestment, with the findings to be presented before Parliament for discussion. According to the report, his concerns extended beyond the IDBI stake sale to the broader question of whether other CPSEs should also be disinvested.
“Pending such an inquiry, the government should keep in abeyance the decision to hand over IDBI’s ownership and management control to Fairfax,” Sarma’s letter proposed.
Sarma argued that the rationale of disinvestment helping the government mobilise additional fiscal resources was flawed. He maintained that private companies acquiring CPSEs would subsequently borrow from the same pool of domestic savings that the government could access on more favourable terms, without relinquishing ownership or control of public sector enterprises.
“The excuse that privatisation leads to better management of an undertaking is equally questionable, as there are several CPSEs that have been functioning efficiently and have withstood global competition,” he added.
EAS Sarma, a 1965-batch Indian Administrative Service (IAS) officer from Andhra Pradesh, served as Secretary to the Government of India in the Ministries of Power and Finance. He retired from the civil service in 2000 after a 35-year career, during which he was transferred 26 times, reportedly owing to differences over policy matters.
Sarma later became an activist after opting for early retirement from the Finance Ministry in November 2000, citing disagreements with the government over public policy issues. Following his departure from the civil service, he headed the Administrative Staff College of India in Hyderabad. In April 2005, he was also nominated as a member of the Indian Council of Social Science Research for a three-year term.
What is IDBI Bank-Fairfax deal?
The government has approved the sale of a 60.72% stake in IDBI Bank to Canada-based Fairfax Financial Holdings for approximately ₹53,000 crore, or around $5.5 billion, according to reports. The deal marks a significant step forward in India’s long-pending banking privatisation efforts.
Under the transaction, Fairfax, led by Canadian billionaire Prem Watsa, will acquire the government’s 30.48% stake for around ₹26,620 crore and Life Insurance Corporation of India’s (LIC) 30.24% stake for approximately ₹26,440 crore. The agreed purchase price of ₹81 per share is higher than the benchmark fair value of ₹75.99 per share assessed by two independent valuation agencies.
IDBI Bank share price outlook after Fairfax deal
According to Seema Srivastava, Senior Research Analyst at SMC Global Securities, the Fairfax deal involving is likely to have a mixed short-term and positive long-term impact on IDBI Bank.
“For IDBI Bank, the transaction represents a significant ownership change that could improve operational efficiency, corporate governance, capital allocation and long-term business growth,” she said.
Srivastava added that the immediate share-price reaction may remain volatile in the near-term, with investors may book profits or reassess the stock’s near-term valuation.
“The acquisition price should not be considered a guaranteed floor for market trading, and the formal open-offer terms will be an important factor for minority shareholders,” she said.
Meanwhile, Sunny Agrawal, Head of Fundamental Research at SBI Securities, said IDBI Bank’s re-rating would hinge on faster earnings growth and an improvement in the quality of its earnings.
He noted that a potential merger between CSB Bank and IDBI Bank would require investors to evaluate both the benefits and the integration challenges. According to Agrawal, a meaningful re-rating could still be four to eight quarters away, as the merger process would need to be completed and the required regulatory approvals obtained.
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