The Union Cabinet has given its approval to sell IDBI Bank to a Canada's Fairfax arm for Rs 52,000 crore. The Cabinet Committee on Economic Affairs (CCEA) has approved the transaction, which is one of the biggest foreign direct investment (FDI) deals in India's financial services sector, Union Minister Ashwini Vaishnaw said.

Key Highlights

• The Union Cabinet approved the Rs 52,000 crore IDBI Bank strategic sale to a Fairfax arm.
• The government and LIC will divest a combined 60.72% stake, transferring majority ownership and management control to Fairfax.

Fairfax Financial Holdings will buy the stake via its subsidiary, 10955230 Canada Inc. The proposed transaction would comprise the sale of the Government of India's 60.72% stake and the Life Insurance Corporation of India's (LIC) 39.28% stake, which would result in the transfer of majority stake and management control to the strategic buyer.

The Centre is looking to divest 30.48% of its IDBI Bank stake, while LIC will offload a stake of 30.24%. The deal is a key part of the government's strategy to sell down its stake in the lender and attract a strategic private backer.

IDBI Bank Strategic Sale: Government and LIC Shareholding

Currently, the Government of India has a 45.48% stake in IDBI Bank, while LIC has a stake of 49.24%. Combined, their equity represents about 94.72% of the bank's equity.

As per the proposed stake sale, the government's stake in the company is likely to reduce to around 15% and LIC's stake to about 19%, keeping in mind the final transaction structure.

The combined 60.72% stake will be transferred to Fairfax's subsidiary on the sale, which will make it majority owned and managed. The deal will alter the bank's ownership and add a strategic player to its board with a controlling stake.

The approval of the deal marks a significant step towards the strategic disinvestment process but final implementation will rely on the completion of the transaction and applicable requirements.

Also Read: Govt Revives IDBI Bank Stake Sale; Rs 80,000 Cr Disinvestment Push

Fairfax Group to Acquire IDBI Bank Stake

Fairfax Financial Holdings, headquartered in Canada, will execute the acquisition through its subsidiary, 10955230 Canada Inc. The proposed Rs 52,000 crore transaction is among the significant foreign investment deals in India's financial services industry.

The strategic investor joining IDBI Bank should usher in a fresh beginning for the bank as the government and LIC take a back seat as to ownership and control of the institution. It also reflects the foreign capital role in the financial services and Indian banking sector.

IDBI Bank Shares Rise 9.07% Ahead of Cabinet Approval

IDBI Bank ended up 9.07% higher at Rs 90.44 on the BSE before the announcement. At the close, the market cap of the bank was Rs 97,244.73 crore.

The rally in the shares was driven by news of the bank's strategic sale. The Cabinet approval of the proposed transaction is a significant milestone towards the ownership change in the lender.

The next stages of the process will be important in determining the final transaction structure and the transfer of management control to Fairfax's subsidiary.