IDBI Bank stocks down 20% in 2-days: What's the reason?
What's the story
Shares of IDBI Bank have witnessed a massive fall of nearly 20% to ₹74.83 apiece in just two trading sessions. The sharp decline comes after reports surfaced that the Indian government may call off the lender's divestment process and scrap existing bids. The news has led to a massive erosion of market value for the bank, amounting to nearly ₹18,900 crore over the two-day period.
Issues
Financial bids for strategic sale fall short of floor price
The strategic sale's setback is said to be due to financial bids falling short of the government's floor price. If the government decides to go ahead with the divestment, it may have to restart the bidding process altogether. The IDBI Bank stock has now fallen over 19% in two sessions and is nearing its 52-week low of ₹72 per share.
Market impact
Market cap loss of ₹18,900cr
The market capitalization of IDBI Bank now stands at around ₹80,224 crore, a sharp decline from ₹99,116 crore on Friday. The divestment process for the bank started in May 2021 when the Cabinet Committee on Economic Affairs approved its strategic sale and management control transfer. In 2023, it was decided that both the government and LIC would offload slightly over 30% stake each in IDBI Bank.
Bidding details
Proposed sale could have fetched government ₹30,215cr
While the government didn't officially name the bidders, reports indicate that Fairfax Financial and Emirates NBD have submitted financial bids. However, Kotak Mahindra Bank clarified in February that it had not participated in the bidding process. The proposed sale of a 30.48% stake could have fetched the government around ₹30,215 crore based on Friday's closing price.
Future implications
What next for IDBI Bank's divestment?
The divestment is part of the government's larger privatization and asset monetization plan, with IDBI Bank being a litmus test for strategic sales in the banking sector. If the sale is canceled, it could jeopardize the government's chances of achieving its FY27 disinvestment and asset monetization target of ₹80,000 crore. The future course of action for IDBI Bank's divestment remains uncertain amid these developments.