A step closer to the privatisation of IDBI Bank was achieved as SEBI approved LIC’s application for reclassification as a public shareholder. This removes a significant regulatory impediment and sets the stage for the strategic sale of the lender, which may gain momentum later this year.
Background: The Plan to Sell IDBI Bank

India is currently the largest shareholder with a 45.48% stake in IDBI Bank, while LIC holds 49.24% of the shares. Together, the two shareholders own 94.7% of the bank. They intend to sell 60.7% of the shareholding, resulting in the transfer of management control to a strategic buyer.

The plan for privatisation was unveiled in 2022 but has suffered delays due to clearance processes, valuation challenges, and global macroeconomic uncertainties. Earlier this month, Arunish Chawla, Secretary to the Department of Investment and Public Asset Management (DIPAM), confirmed that due diligence has been completed, with financial bids likely to be invited between October and December 2025.

Why LIC’s Reclassification Matters

LIC became a promoter shareholder of IDBI Bank in 2019 after rescuing the struggling lender with a capital infusion and gaining board representation. As a promoter, LIC enjoyed strategic influence and voting control.

However, SEBI’s reclassification strips LIC of its promoter rights. The insurer will now be treated as a financial investor, with the following conditions:

• No board representation in IDBI Bank
• Voting rights capped at 10%
• Stake reduction to 15% or below within two years

This transition aligns IDBI Bank’s ownership with norms required for privatisation and reassures potential investors that LIC will not interfere in management decisions post-sale.

Potential Buyers

Interest has come from both global and Indian parties. Emirates NBD and Fairfax Group, headed by Prem Watsa from Canada, are among the reported buyers.

Experts suggest that other Indian financial institutions and global private equity players seeking to expand in the growing banking sector could also be part of the final bidder list.

Expert Views

Financial analysts see LIC’s reclassification as critical in unlocking the privatisation process.

Rajnish Kumar, former SBI Chairman:
“The removal of promoter classification clears the air for strategic buyers who were concerned about dual control. It creates a level playing field for new management.”

Shweta Kapoor, Banking Analyst at Edelweiss:
“Privatisation of IDBI Bank is not just about disinvestment but about signalling the government’s commitment to banking reforms. The reclassification of LIC was inevitable and now accelerates the bidding timeline.”

Arun Kejriwal, Independent Market Expert:
“For LIC, the transition reduces concentration risk. It also allows the insurer to behave purely as an investor, consistent with its long-term objectives.”

Implications for the Banking Sector

Assuming the sale proceeds within the same fiscal year, it will be the first privatisation of a public sector bank in India, leading to:

• Setting a precedent for further privatisations in the financial sector
• Attraction of more global capital into Indian banking
• Strengthening IDBI Bank’s competitiveness through fresh capital and management practices
• Promoting non-tax revenue for the government and reducing direct intervention in banking

Challenges Ahead

Despite progress, several challenges remain:

• Valuation Concerns: Determining fair value for a large stake amid prevailing market conditions
• Regulatory Approvals: Potential buyers must secure approvals from the Reserve Bank of India (RBI)
• Geopolitical Risks: Global economic uncertainties could affect investor appetite

Most analysts believe the government will push to complete the sale in FY2025-26 to reinforce its reform image.

FAQs

Q1: Why was LIC reclassified as a public shareholder?
A: To enable IDBI Bank’s privatisation. As a promoter, LIC held management control, which deterred potential buyers. Reclassification ensures LIC acts solely as a financial investor.

Q2: What conditions has SEBI imposed on LIC?
A: LIC cannot have board representation, its voting rights are capped at 10%, and it must reduce its stake to 15% or below within two years.

Q3: Who are the potential bidders for IDBI Bank?
A: Emirates NBD and Prem Watsa’s Fairfax Group have expressed interest. Other domestic and international financial players may also participate.

Q4: How much stake is being sold?
A: The government and LIC together plan to sell 60.7% of IDBI Bank, giving the buyer management control.

Q5: When will the sale likely take place?
A: Financial bids are expected between October and December 2025, aiming to complete the sale within the current fiscal year.

Q6: Why is the sale significant?
A: It will be the first privatisation of a state-owned bank in India, signalling reform momentum and opening doors for further banking sector liberalisation.

Conclusion

The reclassification of LIC as a public shareholder marks a decisive step toward India’s larger privatisation agenda and financial sector reforms. It paves the way for the strategic sale of IDBI Bank, attracting global investors, fresh capital, and improved governance. Going forward, considerations remain around fair valuation and a seamless transition, but this development highlights the government’s commitment to reducing its role in banking and fostering a vibrant private sector. The successful sale of IDBI may well set the benchmark for future divestments that underpin India’s reform-driven growth strategy.