The Hindu Business Line : IDBI spurns offers for stake in banking arm

INDUSTRIAL Development Bank of India (IDBI) has categorically told foreign banks that have approached it for taking a stake in its banking subsidiary, IDBI Bank, that it would not cede control, at least not until its universal banking plans are crystallised.

However, the institution has allowed its bank to look for a strategic partner to whom fresh equity could be issued.

"Why should we give up our equity? When we floated the bank, we did not do it with the intention of selling it off," said a top IDBI official.

The financial institution is also unlikely to bring down its stake to the RBI-stipulated level of 40 per cent this year. IDBI currently holds about 56 per cent in IDBI Bank. According to RBI regulations, the promoters (IDBI) have to bring down their stake to 40 per cent.

Even though the RBI has been quite insistent on the promoters diluting their stake, IDBI is not willing to do so by offloading its holding as it feels "it would not get the real value for its shares now," the official told Business Line.

The prospective buyers that approached IDBI for its stake are not willing to pay a premium because they are worried the bank and institution may merge.

The financial institution has told them that unless its universal banking plans attain some concrete shape it cannot assure that the bank would not be merged with itself. A couple of foreign banks that were prepared to pay a good premium for the stake in IDBI Bank had shied away as they wanted a "no-merger assurance," he said.

The institution has, however, told IDBI Bank it can look for a partner for a possible private placement of equity. "We do understand that the bank needs additional equity. But that cannot come by our diluting the stake. The bank can find a partner for itself," the official said.

The IDBI Bank stock has been quite active on talks of a stake sale by IDBI. On Thursday, the stock moved up 3.66 per cent on the BSE to close at Rs 28.30 and 3.47 per cent on the NSE to close at Rs 28.25. The volumes have also been quite high with more than 3.6 lakh shares traded on BSE and more than eight lakh shares changing hands on the NSE.

IDBI's universal banking plan envisages merging itself with a large-sized public sector bank.

According to sources, the FI is keen on merging with Union Bank. However, this is possible only after the Government amends the governing Acts - IDBI Act and the Banking Regulation Act.

The FI wants to keep open the option of merging with IDBI Bank for a scenario where an amalgamation with a public sector bank is ruled out.

According to the official, "when we floated the bank one of the future options we had in mind was merging it with us. That was what the regulator too wished. If that is the objective, why should we dilute stake?"

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