IDBI sale to Fairfax faces scrutiny over valuation changes, restricted bidding

• Former Union secretary E.A.S. Sarma has sought an independent inquiry into IDBI Bank’s disinvestment, questioning valuation changes, restricted competition and transparency

• Fairfax’s proposed Rs 52,878 crore acquisition of a 60.72 per cent stake has drawn scrutiny over whether the government and LIC are securing adequate value

• Critics have also raised concerns about parliamentary oversight, employee safeguards and consultation with LIC policyholders

The proposed sale of a controlling stake in IDBI Bank to Canadian investor Prem Watsa’s Fairfax Financial Holdings has come under scrutiny over changes to the reserve price, the exclusion of public sector bidders and limited disclosure of the valuation process.

Former Union government secretary E.A.S. Sarma has urged the President of India to intervene and seek a review of the transaction, arguing that the government must establish whether the sale adequately protects public assets and the interests of employees, depositors and LIC policyholders.

Fairfax’s proposed acquisition of 60.72 per cent of IDBI for Rs 52,878 crore would transfer management control, leaving the Centre with 15 per cent and LIC with 19 per cent. The transaction remains subject to conditions and regulatory approvals.

For critics, the central question is how the government arrived at the terms on which it proposes to relinquish control of a profitable banking franchise.

Reserve price revision questioned

Sarma has questioned the decision to revise the valuation benchmark after bids fell below an earlier reserve price of Rs 94.42 a share.

According to his account, the government subsequently adopted a benchmark of Rs 75.99, approximately 19.5 per cent below the earlier figure. Fairfax’s offer of Rs 81 a share exceeded the revised benchmark but remained below the original reserve price.

Sarma argues that insufficient competition should have prompted the government to widen the bidding process rather than revise its valuation approach.

He has also questioned whether the assessment fully captured IDBI’s property holdings and their potential value.

The sale price was below the approximately Rs 90.40 market price reported on the approval day. That difference does not, by itself, establish undervaluation, but it adds to demands for disclosure of the assumptions underpinning the transaction.

The government’s stated defence is that Fairfax’s bid exceeded the independently assessed Rs 75.99 benchmark. Critics want the basis for that assessment made available for scrutiny.

Exclusion of public sector bidders

Another objection concerns the eligibility rules in the Preliminary Information Memorandum issued on 7 October 2022.

Sarma points to a provision excluding public sector undertakings from bidding, arguing that it prevented institutions such as State Bank of India from introducing greater competition.

In his assessment, the process narrowed to two foreign bidders, from Canada and the United Arab Emirates, without allowing domestic public sector banks to compete.

His objection concerns the effect of those restrictions on price discovery: whether a broader field could have secured better terms for the selling shareholders.

Sarma has also sought disclosure of the agencies that valued IDBI, the methodologies they used and the information considered. He says these details have not been adequately placed before Parliament or the public.

Demand for independent and parliamentary scrutiny

In his appeal to the President, Sarma called for an independent examination of the transaction’s legality and financial prudence, followed by a parliamentary discussion.

“Pending such an inquiry, the government should keep in abeyance the decision to hand over IDBI’s ownership and management control to Fairfax,” he said, citing an earlier representation to the Union finance minister.

Employees’ representatives have separately questioned whether the terms adequately recognise the bank’s assets, customer relationships and future earnings.

IDBI reported a net profit of Rs 9,513 crore for 2025–26. Its recovery has strengthened the argument for examining whether public shareholders should retain control and future income rather than sell at the proposed valuation.

The employees’ forum has also invoked an assurance to Parliament associated with IDBI’s conversion into a banking company that government ownership would remain at least 51 per cent. Whether that assurance constrains the proposed transaction requires legal examination.

Policyholders and employee protections

Sarma has questioned the extent of consultation with LIC policyholders, whose funds supported the insurer’s investment in IDBI. He argues that their interests should have been explicitly considered before approval of the stake sale.

Employee representatives, meanwhile, have sought enforceable safeguards covering service conditions, pensions, reservation policies and wage revisions. The government says existing service conditions and benefits will be protected; the concern is how those assurances will operate after control changes.

The acquisition payment would go to the government and LIC as selling shareholders. It would not constitute fresh capital for IDBI, meaning expenditure on expansion and technology would require separate funding.

Fairfax’s growth plans

Watsa has presented the investment as a long-term commitment to India’s economic growth. Fairfax also proposes bringing its interests in Digit’s insurance businesses and IIFL Capital Services under IDBI, subject to approvals.

Its existing holding in CSB Bank creates a further regulatory issue. Watsa has said Fairfax has two years to resolve that position, with a sale or merger among the possibilities. No CSB–IDBI merger has been agreed.

Those plans offer a commercial rationale for the acquisition. The objections to the disinvestment process, however, centre on whether competition was sufficiently broad, valuation changes were justified and safeguards were established before public owners agreed to surrender control.

With agency inputs