How the IDBI Bank-Fairfax deal was finalised: DIPAM explains valuation and CGD's second bidding procedure

New Delhi: The Department of Investment and Public Asset Management (DIPAM) on Thursday clarified that the second round of bidding for the strategic disinvestment of IDBI Bank was conducted under a procedure set by the Core Group of Secretaries on Disinvestment (CGD), following empowerment from the Cabinet Committee on Economic Affairs (CCEA) to address procedural deviations and issues.

The statement comes after questions were raised by various quarters, including bank unions, regarding IDBI Bank's valuation and the bid submitted by the successful bidder, Canada-based Fairfax Financial Holdings.

DIPAM noted that the initial bidding round conducted in the 2025–26 financial year became functus officio (ceased to have further effect) after the submitted bids were not approved. The reserve price remained unchanged for the second round—referred to as the "best offer round"—with the procedural framework determined directly by the CGD.

Addressing the bidding framework, DIPAM clarified that there was no pre-determined benchmark, as bidders independently evaluate the enterprise and submit confidential offers. Independent valuation agencies are engaged to determine the bank’s fair value, which serves as a comparator to assess whether bids are reasonable.

"The bid discovered price and the comparative valuation can, therefore, be above or below each other," DIPAM said.

Under the Request for Proposal (RFP) guidelines, if the highest financial bid falls below the reserve price, the government determines the subsequent course of action, which qualified interested parties cannot later challenge. DIPAM explained that because no internal procedure existed for such a situation, the CGD stepped in to define the process using powers delegated by the CCEA in August 2017.

The CGD reviewed the entire valuation methodology in April 2026 prior to inviting best offer bids. To ensure financial data reflected conditions contemporaneous with the bids, independent valuation agencies revised their assessments in May using public financial accounts from the quarter ending March 31, 2026.

DIPAM highlighted that the process remained strictly "double blind", with bidders kept unaware of valuations and valuers denied access to incoming bids. Only the CGD had access to both datasets to evaluate offer reasonableness.

Two independent advisers carried out the valuation using distinct methodologies. The business valuation was handled via the transaction adviser, which engaged experts in the Market Multiple Method and Comparable Company Method. Due to a lack of suitable comparable historical transactions, the valuation relied on comparable listed public sector banks.

The department noted IDBI Bank's unique trajectory: it operated as a government-owned banking company until 2019, when the Life Insurance Corporation of India (LIC) acquired a majority stake. Although the Reserve Bank of India (RBI) subsequently classified it as a private bank for regulatory purposes, the government and LIC continued to hold the overwhelming majority of shares.

The asset valuation also accounted for disputed tax demands, with an indemnity provision included at the request of qualified bidders to encourage higher bids. DIPAM stated that while the potential liability under this mechanism stood at Rs 627 crore, the discovered bid price surged by Rs 3,917 crore, significantly enhancing value for both the government and LIC. The indemnity applies only if the tax demand is ultimately paid, making it a low-probability, revenue-neutral event.

Referring to its previous press note dated October 14, 2026, DIPAM reiterated that IDBI Bank's volatile and thinly traded stock price was deliberately excluded as a valuation benchmark. Furthermore, the government and LIC will retain residual shareholdings in the bank to benefit from future value appreciation post-restructuring.

On October 14, the government approved the sale of a 60.72 per cent stake in IDBI Bank to Prem Watsa-led Fairfax Financial Holdings for approximately Rs 53,000 crore (USD 5.5 billion). Marking the largest foreign investment in an Indian bank, Fairfax will acquire a 30.48 per cent stake from the government (valued at ~Rs 26,620 crore) and a 30.24 per cent stake from LIC (valued at ~Rs 26,440 crore) at Rs 81 per share—exceeding the benchmark fair value of Rs 75.99 determined by independent valuers.

The strategic transaction is expected to wrap up by the end of the current financial year, pending regulatory approval from the Reserve Bank of India. (PTI)