The strategic restructuring of IDBI Bank took longer than expected because there was no precedent for bank restructuring in India or abroad, and the process involved complex, multilayered decision-making and coordination with multiple stakeholders and regulators, Arunish Chawla, Secretary, Department of Investment and Public Asset Management (DIPAM), told TNIE. He reassured that adequate safeguards had been built into the transaction to protect the service conditions and terminal benefits of existing employees, as well as the interests of pensioners and investors.
“There was no previous template for bank restructuring either in India or abroad. It was not a Central Public Sector Enterprise (CPSE) that was being strategically restructured. There was multilayered collective decision-making involved, which was complicated and involved a complex exercise,” Chawla said.
He noted that this was the first time the government had worked on a share purchase agreement for a bank involving multiple categories of stakeholders, including the government, Life Insurance Corporation of India (LIC), banks and minority shareholders. The process required extensive consultations and coordination with regulators such as the Reserve Bank of India (RBI), Securities and Exchange Board of India (SEBI) and Insurance Regulatory and Development Authority of India (IRDAI) to ensure compliance with their respective regulations.
“This was original work and thus it took so long,” he said.
According to Chawla, determining the bank’s valuation was particularly challenging compared with that of a conventional public sector enterprise. While the discounted cash flow method is commonly used to value companies, it cannot be applied in the same way to banks, where cash is a key input for business operations.
Elaborating on the next steps, Chawla said the transaction would require RBI approval. Details of the successful bidder and technical documents would be referred to the central bank for examination, regulatory clearance and compliance with applicable conditions. Following RBI clearance, the share purchase agreement would be signed. The successful bidder would then make an open offer to minority shareholders, as required under securities market regulations.
Employees and pensioners' interests protected
The DIPAM secretary said the government had put in place safeguards to protect the interests of existing employees, pensioners and investors.
“Adequate safeguards have been built by the government to ensure there is no impact on the employees, pensioners, investors. And in the share purchase agreement it has been mentioned that the service conditions of the existing employees cannot be altered to their disadvantage. Service benefits, including the terminal benefits, will remain protected,” Chawla said.
He also clarified that the government had no immediate plans to dilute its remaining 15% stake in IDBI Bank and would continue as a public shareholder.
The government on Saturday clarified that a proposal to amend the law to restrict dilution of its stake in IDBI Bank had been made in 2003 but was rejected by Parliament. The Delhi High Court ruled in 2018 that statements made during parliamentary debates could not override the enacted law, which does not prevent the government from reducing or selling its stake.