Fairfax's Rs 52,878 crore IDBI Bank buyout: Watsa says bank's excess capital can fund his businesses

How the sale got here

The government first announced its intention to disinvest from IDBI Bank in the Union Budget for 2020-21. From January 2019 the RBI had categorised the bank as a private-sector lender, after the government reduced its stake. In October 2022 the finance ministry and LIC invited expressions of interest for a joint sale of 60.7%, made up of 30.48% from the government and 30.24% from LIC, along with the transfer of management control. The timelines slipped repeatedly, and at one stage the process was reported to be on hold.

Revised financial bids came in on 13 July this year from Fairfax and the Dubai-based Emirates NBD, with Kotak Mahindra Bank also reported to be in the fray. Fairfax emerged as the frontrunner after revising its offer, and earlier bids had reportedly been below the government's reserve price. Reports in October said the sale would take the government's disinvestment receipts to an eight-year high, above the target for 2026-27. The government and LIC together still hold 94.71% of the bank, the government 45.48% and LIC 49.24%.

The road to the deal was not smooth. Kotak Mahindra Bank had shown interest and received regulatory clearance, but it did not submit a financial bid because of concerns over the valuation. Fairfax's earlier offer fell short of the government's reserve price, and in May the authorities had considered cutting the reserve price by as much as 20%. The government halted the process earlier this year after the initial bids came in low, and restarted it in July, when reports said the sale could conclude within about a month. At market prices in July the 60.7% stake was worth about $5.7 billion, and IDBI's shares touched Rs 88.12 on the day the revised bids were reported, up more than 3% in the session. Final approval was still needed from the Union Cabinet and the RBI.

The price

The price works out to about nine times IDBI's projected FY26 profit of Rs 9,513 crore. The offer is 23% above the bank's net asset value of Rs 65.75 and 7% above its estimated fair value of Rs 76 a share. It is below the recent stock market price. The government says that the market price was inflated by takeover speculation, and that the valuers used a market multiple method and an asset valuation method, not daily share prices. An employees' forum argues that the bank is being undersold. The bank has turned around sharply: its gross NPAs have fallen from 31.8% in 2018 to 2.3% in 2026, and its capital adequacy ratio has risen from 6.2% to 26.7%.

After the sale the government's holding would fall to 15% and LIC's to 19%, against 94.72% together now. The reports differ on whether the deal has been cleared, with one saying the government has approved the sale. It still needs clearances from the RBI and SEBI and a mandatory open offer to minority shareholders, and no closing date has been given.

Foreign entities may own up to 74% of Indian private lenders. Fairfax must bring its promoter holding down to 26% within 15 years, a window that begins after a five-year lock-in. Fairfax already owns CSB Bank, and RBI rules prohibit control of more than one bank, so it would eventually have to sell CSB or consolidate its banking, capital and insurance ventures into one entity. Its other Indian holdings include Go Digit General Insurance, IIFL, Thomas Cook India and the Bengaluru international airport. Fairfax runs an insurance float model, collecting premiums upfront to fund market investments, and the reports say IDBI's wider branch network and higher profitability would give it a stronger distribution channel than CSB Bank has.

LIC relies on IDBI's branches to sell its policies, while Fairfax owns the rival insurer Go Digit. The reports say how the two will coexist after the sale closes is unresolved. For depositors, the bank's operations are not expected to change on the day of the transfer, but the reports do not say what Fairfax intends for staff, branches or products. Questions over the funding plan and the regulatory approvals are likely to decide how quickly the deal closes.