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Informist, Friday, Nov. 21, 2025

 

--Fin min source: Kotak Mahindra Bank seems frontrunner for IDBI Bank stake

--Govt source: RBI has given 'fit and proper' clearance to IDBI Bank bidders

 

By Sagar Sen and Priyasmita Dutta

 

NEW DELHI – Kotak Mahindra Bank appears to be the front-runner for buying the government's 30.48% stake and the Life Insurance Corp. of India's 30.24% stake in IDBI Bank, a senior finance ministry official said. "There are 3–4 interested investors, but some recent activities suggest that Kotak Mahindra is in the pole position. There may also be thinking within the government to go ahead with an established domestic bank for strategic disinvestment," the official told Informist.

 

A senior disinvestment department official said the government is aiming to conclude the sale of IDBI Bank within the current financial year. "We will consider certain factors including the reputation and past track record of the investors. The central bank has already given "fit and proper" clearance to the prospective buyers. Soon the financial bids will be invited and a final decision will be made depending on who places the highest bid," the official said.

 

This clearance by the central bank effectively paves the way for Kotak Mahindra Bank to become the preferred bidder for IDBI Bank because Emirates NDB, another suitor for IDBI Bank, has recently acquired RBL Bank and Fairfax Financial, another suitor, already has a 40% stake in old private sector lender CSB Bank. The only other bidder in the fray is Oaktree Capital Management of Canada, which does not own a significant stake in any bank globally, according to publicly available information. The government has probably not thought about whether it would allow a foreign entity to buy a controlling stake in two banks, that too in quick succession, and this may work against Emirates NBD.

 

The finance ministry official said that earlier there were some reservations among some quarters in the government about selling a controlling stake in IDBI Bank to Kotak Mahindra Bank but now the situation has improved. The reservation would most likely have stemmed from regulatory action by the Reserve Bank of India against Kotak Mahindra Bank. In April 2024, the RBI had directed Kotak Mahindra Bank to stop onboarding new customers through its online and mobile banking channels and from issuing new credit cards. On Feb. 12, 2025 the RBI lifted the restrictions on issuing new credit cards and onboarding new customers digitally as the private lender had taken remedial measures to address the central bank's concerns.

 

The government would be keen to conclude the sale of IDBI Bank in the current financial year as it would benefit from current valuations. Since the time of seeking initial bids from interested investors in October 2022, the share price of IDBI Bank has more than doubled to INR 102.80 Thursday. At this price, the government will get INR 337 billion from the sale of its 30.48% stake while LIC will get INR 334 billion from the sale of its 30.24% stake.

 

In the post-earnings media call detailing September quarter financial results, Kotak Mahindra Bank's management had said that the bank aspires to grow across the spectrum of financial space and is open to inorganic growth. "We always keep in mind that we want, we may need that liquidity for any other opportunity that may kind of come along. And we scan, we look at every single opportunity in the inorganic space, not restricted to the bank," Managing Director & Chief Executive Officer Ashok Vaswani had said.

 

The government had invited expressions of interest to sell its 30.48% stake and LIC's 30.24% stake in IDBI Bank in October 2022. Currently, the government holds 45.48% stake in the bank and LIC, which is the promoter, holds 49.24%. After the proposed strategic sale, the government's stake will come down to 15% and LIC will hold 19% in the bank. If IDBI Bank is privatised, it will be only the second strategic disinvestment the government has succeeded in after Air India.

 

LIC had paid INR 216.24 billion in FY19 to acquire 51% stake in IDBI Bank. The life insurer had invested another INR 47.43 billion in September 2019 and the government had infused INR 45.57 billion, after which LIC continued to hold 51% stake in the bank. IDBI Bank had raised equity capital to the tune of INR 14.35 billion through qualified institutional placement route in December 2020, after which government shareholding in IDBI Bank fell to 45.48% and LIC's fell to 49.24%. At current market price of IDBI Bank shares, LIC will likely make a profit of INR 70.6 billion by selling its 30.24% stake.

 

At the time of its sale to LIC, IDBI Bank was one of the 11 public sector lenders that were put under the RBI's prompt corrective action framework for high bad loans. With more than a quarter of all its loans classified as non-performing assets, IDBI Bank had posted a combined net loss of more than INR 170 billion from FY16 to FY18. It was then that the government started to look for ways to improve IDBI Bank's performance and governance. One of the options that got traction was LIC's proposal to buy a controlling 51% stake in the bank. The government had then been criticised for seemingly pushing the life insurance behemoth into bailing out the beleaguered bank.

 

DEAL WILL HELP KOTAK CLOSE GAP WITH AXIS

If Kotak Mahindra Bank succeeds in buying IDBI Bank, it will still remain the fourth largest private sector bank but this transaction will help it close the gap with Axis Bank, which is the third largest private sector bank.

 

IDBI Bank had advances of INR 2.30 trillion and deposits of INR 3.04 trillion at the end of September. The bank's net profit for the September quarter was INR 36.27 billion and it has over 2,100 branches. Kotak Mahindra Bank had advances of INR 4.79 trillion and deposits of INR 5.29 trillion at the end of September. The private sector bank's net profit for the September quarter was INR 32.53 billion and it has 2,198 branches. 

 

If Kotak Mahindra Bank were to buy IDBI Bank, the combined entity would have total advances of INR 7.1 trillion and deposits of INR 8.3 trillion. It would have 4,300 branches. Even after such a takeover, Kotak Mahindra Bank would continue to be the fourth largest private sector bank but almost 50% larger than it currently is.

 

Axis Bank, the third largest, had advances of INR 11.17 trillion and deposits of INR 12.03 trillion at the end of September. A takeover of IDBI Bank will help Kotak Mahindra Bank close the gap with Axis Bank. At the current level, Kotak Mahindra Bank's asset book is 43% of Axis Bank's asset book. If Kotak Mahindra Bank buys IDBI Bank, its combined assets would be 63% of the assets of Axis Bank.

 

On net profit, Kotak Mahindra Bank's net profit would double if it buys IDBI Bank. A combined quarterly net profit of INR 68.8 billion would be higher than the net profit of INR 50.90 billion that Axis Bank had reported for the September quarter. HDFC Bank and ICICI Bank are in a different league by themselves. While HDFC Bank's net profit for the September quarter was INR 186.49 billion, ICICI Bank's net profit was INR 123.59 billion.

 

India's largest private sector bank HDFC Bank had advances of INR 27.46 trillion and deposits of INR 28.02 trillion at the end of September. ICICI Bank, the second largest private sector bank, had advances of INR 14.08 trillion and deposits of INR 16.1 trillion at the end of September. None of the top three private sector banks--HDFC Bank, ICICI Bank, and Axis Bank, have shown interest in bidding for IDBI Bank.

 

On branch network, a combined Kotak Mahindra Bank-IDBI Bank would have 4,298 branches at the end of September. This doubling of branches would compare very well with the 5,976 branches of Axis Bank though it would be a far cry from the 9,545 branches of HDFC Bank and the 7,246 branches of ICICI Bank.

 

At 1501 IST, shares of IDBI Bank were trading 2.4% lower at INR 100.35 on the National Stock Exchange, while shares of Kotak Mahindra Bank were down 0.6% at INR 2,087.10.  End

 

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

 

Edited by Ashish Shirke

 

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