The Indian Finance Ministry has issued a robust defense of the bidding and valuation process for the strategic disinvestment of IDBI Bank. The ministry clarified that the decision to conduct a second round of offers adhered to established procedures and did not involve any alteration to the bank's reserve price.
Ministry Clarifies Bidding Procedure and Guidelines
In response to reports questioning the process, the ministry explained that the initial bidding round, conducted by the Department of Investment and Public Asset Management (DIPAM) in FY2025-26, followed internal guidelines. These guidelines, developed over time, are indicative rather than rigid legal frameworks, allowing for procedural modifications to ensure complex strategic transactions are executed efficiently without undue delays or wasted resources.
The ministry emphasized that the foreword to these guidelines explicitly states they are not to be construed as a strict legal framework, providing flexibility for adaptation in the best interest of a successful and timely transaction. This inherent flexibility is crucial for navigating the complexities inherent in strategic disinvestments.
No Predetermined Benchmark for Financial Bids
Officials also clarified that there was no predetermined benchmark for the financial bids submitted by prospective buyers. While bidders independently formulated their offers, external valuation agencies were engaged to assess IDBI Bank's enterprise value, providing a comparative basis for evaluating those bids. The Request for Proposal (RFP) allowed the government to determine the next course of action if the highest bid fell below the reserve price.
Given the absence of an internal DIPAM procedure for such situations, special powers were delegated to the Core Group of Secretaries on Disinvestment (CGD) by the Cabinet Committee of Economic Affairs (CCEA). The CGD, empowered by a 2017 CCEA decision to address procedural difficulties, approved the method for the second, or 'best-offer,' round after the initial bids were not approved. Crucially, the reserve price was neither reduced nor increased.
Valuation Methodology and Bid Value Increase
The ministry detailed the valuation process, noting that the CGD reviewed the methodology in April 2026 before inviting best-offer bids. Independent agencies subsequently prepared revised valuations following the publication of IDBI Bank's March 2026 financial accounts. The process maintained a 'double-blind' approach, ensuring bidders were unaware of valuations and valuers had no access to bids, with only the CGD possessing both sets of information for final assessment.
Two independent advisors utilized separate methodologies, with business valuation relying on the market multiple method, comparing IDBI Bank to listed public sector banks due to a lack of suitable comparable transactions. Despite the Reserve Bank of India (RBI) treating IDBI Bank as a private bank since LIC acquired a majority stake in 2019, investors continued to value it as a public sector entity.
The ministry also addressed concerns regarding disputed tax demands, explaining that indemnity provisions were introduced following requests from qualified bidders. This measure, limiting potential liability to Rs 627 crore, reportedly increased the resulting bid price by Rs 3,917 crore, significantly improving the transaction value for the government and LIC. The tax liability was deemed a low-probability event, and reimbursement would only occur if an additional tax demand was actually paid, making it revenue-neutral for the government.
Furthermore, the ministry reiterated that IDBI Bank's volatile share price, influenced by narrow trading volumes, was not considered an appropriate benchmark for valuation. The government and LIC will retain residual shareholdings, allowing them to benefit from any future increase in IDBI Bank's value post-strategic restructuring.
The clarification follows the government's approval on October 14 for the sale of a 60.72% stake in IDBI Bank to Fairfax for Rs 52,878 crore, amidst reports scrutinizing the valuation and bidding process. The government had initially set a reserve price of Rs 94.42 per share.