Government defends IDBI Bank valuation, claiming process increased deal value by 3917 crore rupees
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Business Standard
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Government defends IDBI Bank valuation, claiming process increased deal value by 3917 crore rupees

The Ministry of Finance defended the valuation and auction procedure related to the strategic sale of IDBI Bank, stating that the government's adopted process helped increase the transaction value by 3917 crore rupees.

It was noted that the Core Group of Secretaries on Disinvestment (CGD) was granted special powers to make decisions regarding the final round of bidding process and to settle any procedural issues.

The Ministry clarified that the CGD, authorized by the Cabinet Committee on Economic Affairs (CCEA), reviewed the entire valuation process to ensure the effective execution of the strategic disinvestment.

It was also explained that the reserve price for this deal did not change during the process. According to the statement, 'the reserve price was neither lowered nor increased, and the first round became void after the initial bids were not approved.'

On October 14, the CCEA approved the strategic sale of a cumulative stake of 60.72 percent in IDBI Bank to the Canadian investment firm Fairfax Financial Holdings. The total deal value is estimated at approximately 53,000 crore rupees, with the approved offer price set at 81 rupees per share.

How the bidding process was conducted

According to the ministry, the initial stage of bidding took place in the financial year 2025-26 and was organized by the Department of Investment and Public Asset Management (Dipam) in accordance with its internal practices. These practices are considered indicative guidelines, not rigid rules or regulations.

The Ministry explained that there is no predetermined benchmark for the bidding. Interested parties independently assess the company's value and submit confidential bids. Independent agencies are engaged within the process to conduct a simultaneous fair enterprise valuation, which is then used as a comparative basis to determine the justification of the submitted bids. Thus, the price found in the auction and the comparative valuation may be higher or lower than each other,' the statement reads.

Since DIPAM does not have a prescribed internal procedure for resolving such situations, the ministry added that the CCEA delegated special powers to the CGD to make appropriate decisions.

How the valuation methodology was approved?

The Ministry reported that the CGD studied the valuation methodology in April 2026 before inviting participation in the best bid round.

It was added that the valuation agencies began working on updated valuations in May, after the financial statements for the year ending March 31, 2026, became publicly available at the end of April. This was necessary to ensure that the valuation was based on financial information available at the time of the bidding.

The Ministry emphasized that the process maintained confidentiality. 'The process remained double-blind, as the bidder did not know about the valuation, and the valuers did not see the bids. Only the CGD receives the full picture and compares the bids with fair valuations to make a final decision on the justification of the submitted applications,' the statement indicated.

The valuation was conducted by two independent consultants using different methods. The deal consultant handled the business valuation and involved experts trained in the Market Multiplier Method, considering the complexity of the deal.

The Ministry also clarified the bank's classification. IDBI Bank was a public sector bank until 2019, but after Life Insurance Corporation of India (LIC) acquired a controlling stake that year, it became a state-controlled bank.

'Since there is no specific regulatory protocol for this situation, the RBI began treating it as a private bank only for regulatory purposes, even though ownership predominantly remained with LIC and the Government of India, and market investors continued to value it as a public enterprise,' the statement said.

Why the government claims the deal value increased

The Ministry stated that the asset valuer also followed established valuation methods and accounted for disputed tax demands. The provision for these demands was included as compensation, following the general request of qualified bidders, to encourage higher offers.

'This remains a low-probability and neutral event for government revenue, as only an additional tax demand, if paid, would be eligible for reimbursement. The potential liability that could have arisen from this was only 627 crore rupees, whereas the price found in the auction, increased by 3917 crore rupees, increased the deal value for the Government of India and LIC.'

It is reported that the government and LIC will retain residual stakes in the bank, allowing them to benefit from any growth in its value after the strategic restructuring.

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