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Cabinet Approves Sale of State Bank IDBI Stake to Fairfax Financial Holdings from Canada
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Aaj Tak
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Cabinet Approves Sale of State Bank IDBI Stake to Fairfax Financial Holdings from Canada

The Central Cabinet of Ministers approved on Wednesday the sale of a 60.72% stake in IDBI Bank to the Canadian financial company Fairfax Financial Holdings. This stake is approved for sale amounting to INR 52,878.08 crore.

The Committee on Economic Affairs (CCEA), chaired by Prime Minister Narendra Modi, gave consent for Fairfax to become the strategic buyer of IDBI Bank. This deal involves the sale of 30.48% of the government's stake and 30.24% of the Indian Life Insurance Corporation (LIC).

After the sale of this stake, the government will retain 15% of the bank's shares, and LIC will hold 19%. Thus, their combined stake will be 34%. Union Minister Ashwini Vaishnaw stated that after the completion of this deal, it will represent the largest Foreign Direct Investment (FDI) in India's financial sector.

The process of selling IDBI Bank was overseen by several government bodies, including the group of secretaries for privatization and the group of ministers with relevant powers, and involved two-stage tender procedures. The initial announcement of the sale of IDBI Bank was made in 2022, but it was postponed due to regulatory and procedural hurdles. Tenders were suspended in March as they did not meet the government's expectations. Nevertheless, the deal has now been finalized and approved by the cabinet.

Before receiving cabinet approval, the bank's shares showed significant growth. IDBI Bank Limited shares increased by 13%. This rise occurred before the publication of the second-quarter results, scheduled for October 17. During the day, IDBI Bank shares rose from the previous closing price of INR 82.92 to INR 93.62. However, the stock later closed at INR 89.85, showing an increase of 8.33%.

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Sale of stake in IDBI Bank will help the government achieve privatization goals for the first time in 8 years
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Sale of stake in IDBI Bank will help the government achieve privatization goals for the first time in 8 years

The privatization of IDBI Bank could be a significant success for the government in asset divestment this fiscal year, which is good news for the economy. The central government has long been working on a plan to sell its large stake in IDBI Bank, as well as a stake in the Life Insurance Corporation (LIC). The government believes that such strategic divestment will introduce private management efficiency into the bank's operations, thereby strengthening its position.

Recently, the Cabinet approved a proposal for the sale and strategic reorganization of IDBI Bank. Experts believe that this deal could be a turning point for the government, allowing it to easily exceed target figures for asset divestment and monetization in the 2027 fiscal year.

The government has set an ambitious goal to raise about 80,000 crore rupees through asset divestment and monetization by the 2027 fiscal year. The sale of the stake in IDBI Bank plays a key role here. Additionally, funds are planned to be raised by selling small stakes in other state-owned entities, such as LIC. It is estimated that the government will receive about 26,000 crore rupees from the sale of the IDBI Bank stake.

The sale of IDBI Bank will ensure a large inflow of funds into the treasury, which will help control the budget deficit. If this major deal is completed on time, the government will not only meet initial forecasts but also surpass the established financial targets.

According to government data, as of September 10 of this year, the government has already collected 62,124 crore rupees from asset divestment and monetization, falling short of the budget target by 17,876 crore rupees. The sale of the stake in IDBI Bank will allow this gap to be closed. Thus, for the first time since the 2018-19 fiscal year, the government will collect more funds than planned in the budget through asset divestment and monetization. In the previous fiscal year, the government collected 45,306 crore rupees, which accounted for about 96 percent of the planned 47,000 crore rupees.

It is reported that the government, together with LIC, is selling a total stake of 60.72% in IDBI Bank to the Canadian financial group 'Fairfax Financial Holdings'. According to DIPAM, the government will sell its 30.48% stake, and LIC will sell 30.24%.

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