IDBI Bank's Never-Ending Sale: Five Years On, the Government Tries Again

India's most prolonged privatisation effort is getting a fresh start.

The government is preparing to relaunch the sale of its stake in IDBI Bank after an earlier attempt fell through because the bids from interested buyers did not meet the minimum price it had set.

The core group of secretaries—chaired by the Cabinet Secretary and comprising officials from DIPAM, financial services, economic affairs, legal affairs, the administrative ministry and NITI Aayog—was scheduled to meet on April 27 for the first high-level review since a fresh valuation exercise was initiated. The group is expected to assess bidder appetite, revisit pricing assumptions, and decide the next steps for the transaction.

Notably, this comes after Finance Minister Nirmala Sitharaman, at ET Awards, reaffirmed that the privatisation will move forward despite the delays.

Outcomes of the core group's meeting were not available at the time of writing this report.

From Bad Loans to LIC Bailout

The story of IDBI Bank's troubled privatisation goes back nearly a decade.

In the mid-2010s, the bank was weighed down by rising bad loans and weak financials, which limited investor interest. To stabilise it, Life Insurance Corporation of India (LIC) stepped in as a strategic investor in 2018-19, acquiring a majority stake and taking management control. That move steadied the bank and set the stage for its eventual privatisation.

In 2022, the government and LIC announced plans to sell a combined 60.7% stake in the bank. The government was looking to offload 30.5% of its 45.5% holding, and LIC looking to sell 30.2% of its 49.2% stake. By early 2023, multiple investors had submitted expressions of interest. Over the next two years, the process moved through regulatory approvals and detailed due diligence, covering financial, operational and regulatory assessments.

What Went Wrong?

In February this year, financial bids were finally submitted. According to a Reuters report, Canada's Fairfax Financial Holdings, Dubai's Emirates NBD and Kotak Mahindra Bank were among those who had submitted bids. However, Kotak Mahindra Bank later clarified it had not submitted a financial bid.

The government had hoped to wrap up the transaction before March 31, 2026. Unfortunately, that deadline was not met. Multiple media reports suggested the bids fell short of the government's reserve price, the minimum acceptable price below which it would not sell. Market conditions and investor risk perception, including the West Asia war, contributed to this gap, forcing the government to pause and reassess.

Had the deal gone through, it could have fetched a combined ₹66,000 crore, according to reported estimates. The successful bidder would also have had the option to rename the bank entirely.

The collapse of the sale was a setback not just for IDBI Bank but for the government's broader plan to reduce state ownership in the banking sector and attract private capital into public sector banks.

What Happens Next?

Following the failed bid, the government has now initiated a fresh valuation exercise, a reset aimed at aligning its expectations with current market realities and avoiding a repeat of the earlier mismatch, the reports added.

At the April 27 meeting, officials were expected to deliberate on revised valuation benchmarks and outline the next steps. This may include fresh engagement with potential bidders, revised timelines, and possible changes to the structure of the transaction.

A key focus this time is expected to be on how the reserve price is calculated, with the government looking to take a more market-aligned approach to avoid another breakdown.

The IDBI Bank sale is widely seen as a test case for India's broader disinvestment strategy, particularly in the financial sector.

A successful transaction would signal investor confidence in India's banking reforms and set a precedent for future privatisations of public sector banks. It would also help the government unlock value from its holdings at a time when it has been under pressure to meet disinvestment targets.

After nearly five years of trying, the government is hoping that this reset finally gets the deal done.