India's biggest-ever banking M&A deal involved no investment bankers
What's the story
Fairfax Financial Holdings's $5.6 billion acquisition of a controlling stake in IDBI Bank is the largest foreign investment in India's banking sector. The deal, which was approved on Wednesday, is also unique because it was executed without the involvement of major investment banks. Unlike other high-value transactions, Fairfax and IDBI chose to manage the process internally without appointing financial advisers formally.
Valuation process
KPMG advised the Indian government on the sale
The Indian government had been trying to sell the Mumbai-based lender for years, as part of its plan to reduce state ownership in banking.
However, the process had often been delayed due to regulatory approvals.
KPMG advised New Delhi on this sale, while two professional agencies helped determine a fair valuation for the government.
However, their names weren't disclosed in any public announcement regarding this transaction.
Move
More open to foreign investments in banking sector
The approach taken by Fairfax and IDBI would have helped them save millions of dollars, even though India is known for low advisory fees.
However, this strategy has also denied investment bankers a potential payday and an opportunity to climb up the league tables.
Despite strict regulations on ownership structures and voting rights, India has become more open to foreign investments in its banking sector.
Cultural shift
Fairfax's biggest challenge lies ahead
Despite getting the government's approval for the acquisition, Fairfax now faces a major challenge of integrating IDBI Bank into its operations.
The bank has been operating as a public sector entity for decades and will now have to adopt private sector practices.
Banking experts say such integrations are difficult, especially when it involves changing the culture of an organization with a unionized workforce.
Past changes
Employee concerns have been raised in the past after privatizations
Employee concerns have been raised in the past after privatizations. This isn't the first time IDBI Bank is being restructured.
In 2005, the Industrial Development Bank of India merged with it. The lender has since received ₹25,000 crore from the government.
In 2019, LIC acquired a controlling stake in a deal hailed as a "win-win situation" for both parties at that time.
Classification impact
Transition from public to private sector banking takes time
Post the ownership change, RBI classified IDBI Bank as a private sector lender for regulatory purposes.
However, a former bank executive who witnessed the 2019 transition said this classification was important: it didn't necessarily mean that there was an equivalent shift in the internal culture of the bank.
As of March 31, IDBI Bank had 20,693 employees, up from last year's figure of 19,731.