Canada's Fairfax to Buy Control of India's IDBI Bank in $5.6 Billion Deal

India's cabinet has approved the sale of a controlling stake in IDBI Bank to Canada's Fairfax Financial Holdings, in a deal worth 52,878 crore rupees, about 5.6 billion dollars. If it is completed, it will be the largest foreign direct investment in an Indian bank.

The Cabinet Committee on Economic Affairs, chaired by Prime Minister Narendra Modi, cleared a Fairfax subsidiary, 10955230 Canada Inc, as the strategic buyer on Wednesday. The government will sell its 30.48 percent stake for about 26,620 crore rupees, and the state-run Life Insurance Corporation of India will sell its 30.24 percent stake for about 26,440 crore rupees. Together the two sales hand Fairfax 60.72 percent of the lender.

Fairfax will pay 81 rupees a share. That is above the benchmark fair value of 75.99 rupees set by two independent valuation agencies, an official statement said on Wednesday.

What changes hands, and what does not

After the sale, the government keeps a 15 percent stake and LIC keeps 19 percent, a combined 34 percent. Both will step down from the board and hold their remaining shares as public shareholders, Reuters reported.

The deal is not done yet. No binding agreements have been signed, and the buyer still has to pass a fit and proper assessment by the Reserve Bank of India. It also needs clearance from the Competition Commission of India and other statutory authorities before it can close.

The market took the price hard

IDBI shares had climbed 9 percent on Wednesday, before the announcement. On Thursday they fell back sharply. The stock closed the morning down 7.54 percent at 83.62 rupees on the BSE, and down 7.48 percent at the same price on the NSE, PTI reported.

The drop points at the gap between the market price and the deal price. Reuters noted that the 81 rupees Fairfax will pay sits at a discount of about 10 percent to the bank's closing price on Wednesday, even though it is above the government's own benchmark valuation.

A sale years in the making

New Delhi has been trying to cut its stake in IDBI for a decade. The formal sale process began in 2022, and it hit a setback earlier this year when the first bids came in below the government's reserve price.

The bank's troubles are older than the sale. The Reserve Bank placed IDBI under its Prompt Corrective Action framework in 2017, after bad loans piled up. LIC became the majority owner in 2019, in what amounted to a rescue. The central bank lifted the restrictions in 2021, after the bank's finances improved, but the government and LIC still hold about 95 percent of it between them.

Fairfax is based in Toronto and is led by its founder, the Canadian billionaire Prem Watsa. Finance Minister Nirmala Sitharaman defended the sale on Wednesday, answering opposition criticism of the decision to hand control of a public lender to a foreign buyer.

For the government, a completed sale would be the clearest step yet in its long effort to privatise IDBI and reduce state ownership of banks. For Fairfax, it would be the biggest single bet it has made on Indian banking.