IDBI Bank shares drop 4% as Kotak Mahindra Bank stays away from stake sale; Fairfax, Emirates NBD in fray

Shares of IDBI Bank slipped as much as 4% to an intraday low of Rs 103 amid developments around the planned strategic sale of the state-owned lender. The disinvestment process has attracted bids from Indian-Canadian investor Prema Watsa’s Fairfax Financial and Emirates NBD.

The government of India and Life Insurance Corporation of India (LIC), which hold stakes of 45.48% and 49.24% respectively, are together looking to divest a 60.7% stake in the bank as part of the broader privatisation programme.

Meanwhile, Kotak Mahindra Bank clarified that it has not submitted a financial bid for IDBI Bank, dismissing recent media reports. The proposed sale was first announced in 2022, and the government is targeting to announce the successful bidder by March.

The bank has a current market capitalisation of around Rs 1.12 lakh crore. According to sources cited by Reuters, Fairfax — which already holds a majority stake in CSB Bank — may consider merging IDBI Bank with CSB Bank if its bid is successful.

The government has previously said the sale will be concluded in the current financial year ending March 31, 2026. The successful bidder will be allowed to rename the bank, Reuters reported last week.

IDBI Bank traces its origins to 1964, when it was established as the Industrial Development Bank of India through an Act of Parliament to support long-term industrial financing. In 2005, its commercial banking arm was fully merged into the institution, transforming it into a universal bank with both development finance and lending operations. Over time, however, this dual structure became a challenge, as the bank retained a heavy corporate lending focus even as peers diversified into retail segments, leaving it more exposed to concentrated risks and with limited balance from granular retail growth.
By the mid-2010s, mounting bad loans and weak capital buffers had significantly strained the bank’s financial position. In 2017, the Reserve Bank of India placed IDBI under the Prompt Corrective Action (PCA) framework after it breached key thresholds related to capital adequacy, asset quality, return on assets and leverage. The restrictions under PCA curtailed lending expansion and underscored the severity of the bank’s operational and balance-sheet stress.The situation reached a turning point in 2019 when the government directed Life Insurance Corporation of India (LIC) to acquire a controlling 51% stake and infuse capital to stabilise the lender. LIC’s takeover strengthened the balance sheet and reflected a clear policy decision to support the institution. Following the transaction, the RBI reclassified IDBI as a private sector bank for regulatory purposes, despite the continued majority ownership by government-linked entities.

IDBI Bank shares have risen 31.23% in the last 1 year.

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