shares of IDBI Bank Shares fell more than 7% on Thursday after India’s government announced it would sell a majority stake in the state-owned bank to Canada’s Fairfax Financial Holdings for more than 529 billion rupees ($5.5 billion).
If given final approval, the deal will be the largest foreign direct investment transaction in India’s financial sector, the Indian Ministry of Finance said in a release on Wednesday.
“(IDBI) Bank has required repeated capital injections due to its poor financial health,” the ministry said, adding that after a temporary recovery, the government decided to sell a 60.7% stake in the bank to a “strategic buyer.”
During the bidding process, the government had set the average fair value of IDBI shares at Rs 75.99 per share. Fairfax’s winning bid was 81 rupees per share, the government said.
IDBI shares on Wednesday closed at Rs 90.39, higher than Fairfax’s winning bid. Fairfax will need to present its credentials to India’s banking regulator, the Reserve Bank of India, for an “appropriate and appropriate assessment”.
“Having supported the bank’s recovery, we are now enabling the bank’s next phase of growth through an infusion of foreign direct investment while maintaining a minority stake,” Indian Finance Minister Nirmala Sitharaman said in a post on Wednesday.
He emphasized that with Fairfax’s investment, “India’s growth story is strong, the economy is resilient and the government’s commitment to reform is unwavering.”
Earlier this year, the Indian government sold stakes in several companies, including Cochin Shipyards, Indian Railway Finance Corporation, NHPC and Coal India. In August, it raised $3.3 billion by selling a 6.5% stake in Life Insurance Corporation of India, India’s largest life insurance company.
The government has sold stakes in several state-owned enterprises this year in a bid to keep the country’s growth engine revving amid deepening fiscal pressures.
