The government has strongly defended the valuation process and bidding method adopted for the stake sale in IDBI Bank. This step comes in the wake of questions raised regarding the privatization and valuation of IDBI Bank across various quarters. According to the official information provided by the Ministry of Finance, the entire process and bidding methodology were thoroughly reviewed by the Core Group of Secretaries on Disinvestment. The ministry clarified that during the bank's sale process, the reserve price, which is the predetermined minimum price, was neither reduced nor increased, and the entire procedure was executed strictly based on established rules and independent valuations.
The controversy erupted when the bids received in the first round of IDBI Bank's sale were below the predetermined price. 72% stake. The total value of this deal has been stated to be around 52,878 crore rupees. 42 rupees per share. Consequently, those initial bids weren't approved, marking the end of that phase.
Second Bidding Process and Entry of Fairfax
Following the unsuccessful initial round, the government invited the best offers from eligible bidders in the financial year 2026-27. In this new process, the Canadian firm Fairfax Financial Holdings placed a bid of 81 rupees per share. The government approved this proposal. 42 rupees per share. To address these questions and criticisms, the Ministry of Finance has issued a detailed clarification.
In its clarification issued on October 29, the Ministry of Finance emphasized that the reserve price wasn't arbitrarily changed during the IDBI Bank sale. According to the ministry, when the proposals weren't accepted in the initial bidding process, that first round came to an end. Subsequently, the second or Best Offer process was adopted. This second process was determined by the Core Group of Secretaries on Disinvestment empowered by the Cabinet Committee on Economic Affairs. The government stated that this process wasn't tailored to benefit any single bidder, but its objective was to secure a better price for the government and LIC through competitive bidding.
Bank Valuation and Double Blind Process
Throwing light on the pricing methodology of the bank, the Ministry of Finance stated that two independent consultants were engaged for the valuation of IDBI Bank. Both consultants assessed the fair value of the bank using distinct methodologies. The Market Multiple Method was utilized for business valuation, comparing IDBI Bank with listed public sector banks. This method estimates a company's fair value based on its financial health and the valuation of comparable companies in the market. On the other hand, a separate process was adopted for asset valuation, taking into account the bank's assets and potential liabilities. The government claims that both valuation processes were completely independent of each other and free from any external influence.
To maintain transparency throughout the procedure, the government also implemented a Double Blind Process. This meant that the bidding company wasn't aware of the valuation figures, and the valuation agencies were kept in the dark regarding the bid prices. All sensitive information was restricted solely to the Core Group of Secretaries on Disinvestment, while this specialized group compared the bid prices with independent valuations to determine whether the final offers were fair. The government claims that this rigorous arrangement prevented any potential undue influence between bidders and valuation agencies.
Additional Gains for the Government and Future Strategy
The Ministry of Finance further clarified that the new bidding process resulted in an increase of 3,917 crore rupees in the realized value of the deal. Alongside this, the government arranged to provide limited protection to the buyer known as Tax Indemnity against potential liabilities arising from disputed tax demands, while under this arrangement, the potential tax liability has been estimated at around 627 crore rupees. The government stated that this liability is a low-probability event, and the buyer will be required to pay only if the concerned additional tax actually materializes.
According to the ministry's data, against the potential liability of 627 crore rupees, an additional realization of 3,917 crore rupees has been secured, thereby increasing the overall value of the deal for the central government and LIC. Even after the completion of this deal, the central government and LIC will retain some stake in IDBI Bank. According to the government, strategic restructuring and improved future business operations of the bank could drive its valuation higher. In such a positive scenario, the remaining stake will continue to benefit the central government and LIC in the future. Because of this, the government maintains that this deal isn't merely limited to selling the current stake, but is also part of a broader strategy to enhance the bank's future business and value.