Union Government attempts to completely privatize IDBI Bank


On 7th October 2022, the Government of India invited bids for privatizing IDBI Bank and announced that the Union Government along with LIC will sell 60.72 per cent stake in IDBI Bank. This is nothing but completely handing over IDBI Bank to the private business enterprises which would eventually result in class banking instead of mass banking.  The consequences of privatization would deprive services to the common man and increase the already widened economic divide between the rich and the poor.

Genesis of IDBI Bank

Industrial Development Bank of India (IDBI) was established in 1964 under the Industrial Development Bank of India Act, 1964 to provide credit and other facilities for the development of industry in various forms and to function as the Principal Financial Institution for coordinating the working of institutions engaged in financing, promoting or developing industry and assisting the development of such institutions. IDBI functioned as a department of RBI before it was de-linked in 1977 by making it a Statutory Body wholly owned by Govt. of India.  The very purpose of this Development Financial Institution was to ensure the long term credit needs of the Industries which would help the economic growth of the country and create employment opportunities.

With the advent of neo-liberal policies, the IDBI Act was amended in 1994 to off-load the Government shares in IDBI to the private hands despite stiff resistance from the working class in general and the bank employees in particular. Thus the shareholding of the Central Government was reduced from 100% to 58.5%. IDBI was converted as “Deemed Banking Company” w.e.f. 10.10.2004 and was renamed as IDBI Ltd. With effect from 1.4.2005, IDBI Bank (subsidiary Bank of IDBI belonging to New Generation Private Sector) was amalgamated with IDBI Ltd in terms of the amalgamation Scheme approved by Reserve Bank of India

Further, w.e.f. 3.10.2006, erstwhile United Western Bank Ltd (Old generation Private Sector Bank under liquidation) was amalgamated with IDBI Ltd., based on Government of India Notification dated 30.9.2006. Name of IDBI Ltd was changed as IDBI Bank Ltd., w.e.f. 7.5.2008

IDBI (Transfer of Undertaking and Repeal) Bill, 2002:

During the Vajpayee Government, IDBI Bank was sought to be converted into Deemed Banking Company through IDBI (Transfer of Undertaking and Repeal) Bill 2002. On 8.12.2003 there was a solemn assurance from the then Finance Minister, Shri Jaswant Singh in the Lok Sabha that Government shall, at all times,  retain its share-holding at  not less than 51%. Accordingly, it is provided in Clause 4 of the Articles of Association that “ the Central Government being a shareholder of the Company, shall at all times maintain not less than fifty one percent of the issued capital of the Company”

The Reserve Bank of India vide its letter Re. DBOD/BP/1630/21.04.152./2004-05 dated 15.4.2005, based on the assurance given by the Hon’ble Finance Minister on 8.12.2003 that Government holding in IDBI Ltd. would always be above 51%, IDBI Ltd. was categorized under New sub Group: “Other Public Sector Banks”

Government shareholding reduced to below 51%

In 2016, Modi Government took the stand to reduce the Government shareholding in IDBI Bank to below 50%. It was first retrograde step of the BJP Government. LIC was asked to acquire 51% shareholding with controlling stake in IDBI Bank. Consequent upon LIC acquiring 51% controlling stake in IDBI Bank, Reserve Bank of India vide its notification dated March 14, 2019 categorized IDBI Bank as a “Private Bank” for regulatory purposes w.e.f. January 21, 2019.

Present stand of the Union Government

As on 30.9.2022, LIC holds 49.24% of the shareholding while GOI holds 45.48% of the share in IDBI Bank.  LIC had bought a 51 per cent stake in IDBI Bank in 2019 for Rs 21,624 crore at an average price of Rs 61 per share. Now the current (as on 18.10.2022) share price of IDBI Bank is reduced to 43.50.

On October 7, 2022, the Government of India has decided to completely hand over IDBI Bank to the private hands and has invited bids for selling 60.72 per cent stake in IDBI Bank. The government will sell 30.48 per cent and LIC will offload 30.24 per cent stake, aggregating to 60.72 per cent of the equity share capital of IDBI Bank, along with transfer of management control in IDBI Bank to the private entrepreneurs.

If this move of the Government materializes, then IDBI Bank will completely go into the private hands.  It is a paradox that while IDBI as a DFI is being killed, the Government of India has instituted a new DFI – The National Bank for Financing Infrastructure and Development (NABFID) with Government committing 20000 crores as Equity capital.

The move of the Union Government to hand over IDBI Bank to the private hands has to be stoutly opposed and defeated.

Comment here...