IDBI Bank Stake Sale: Govt Eyes OFS Route to Boost Public Float

The Indian government is revisiting plans to reduce its stake in IDBI Bank, this time potentially through an Offer-for-Sale (OFS) route, according to sources familiar with the matter. This move comes after a previous attempt to divest a majority stake in the lender fell through earlier this month, as potential buyers reportedly submitted bids below the government’s reserve price. The renewed consideration of an OFS highlights the challenges in privatizing IDBI Bank, and the government’s continued effort to increase public float and improve the bank’s valuation.

A Previous Privatization Attempt Stalled

The recent setback involved the proposed sale of a 60.72% stake, jointly held by the government and Life Insurance Corporation of India (LIC). Bids from Emirates NBD Bank and Prem Vatsa-promoted Fairfax India were received in February 2026, but ultimately deemed insufficient. IDBI Bank’s history with privatization dates back to 2016, with the initial idea being formally proposed in the Union Budget speech by then-Finance Minister Arun Jaitley. That first attempt was also hampered by valuation concerns.

The current structure of IDBI Bank’s ownership presents a key hurdle. LIC holds a controlling 49.24% stake, while the Government of India owns 45.48%. The remaining 5.29% constitutes the public float – a significantly low percentage that limits the scope for fair valuation, as it restricts broad market participation and price discovery. Increasing this public float by even 10-15% is seen as a way to address this issue.

What is an Offer-for-Sale (OFS)?

An Offer-for-Sale is a mechanism used by listed companies to dilute promoter holding by offering shares to the public through stock exchanges. Unlike a Follow-on Public Offer (FPO), an OFS is typically smaller in scale and doesn’t involve a fresh issue of shares. Instead, existing shareholders – in this case, the government – sell a portion of their holdings directly to investors. The process is generally managed by investment banks, and the price is determined through a bidding process on the stock exchange. More information on OFS mechanisms can be found here.

The Role of LIC and Past Interventions

The story of IDBI Bank’s ownership is intertwined with LIC’s involvement. In January 2019, LIC acquired a 51% controlling stake in IDBI Bank for approximately Rs 21,624 crore. This acquisition was a rescue operation, aimed at addressing the bank’s mounting lousy loans and bolstering its capital base. Following this, the Reserve Bank of India (RBI) reclassified IDBI Bank as a private-sector bank. However, in December 2020, the bank was reclassified as an associate company after LIC reduced its stake to 49.24%.

The government’s initial push for privatization gained momentum in May 2021 when the Cabinet Committee on Economic Affairs (CCEA) gave its in-principle approval for strategic disinvestment, including the transfer of management control. KPMG India was appointed as the transaction advisor in October 2022, and the intent to sell 60.72% was announced. The Securities and Exchange Board of India (SEBI) approved the reclassification of the government as a public shareholder upon completion of the sale in January 2023, setting the stage for the failed bid process earlier this year.

Implications for Investors and the Banking Sector

A successful OFS could benefit both the government, by helping it meet its disinvestment targets, and IDBI Bank, by improving its public float and potentially increasing its stock price. A higher public float generally leads to greater liquidity and more accurate price discovery. However, the timing of the OFS will be crucial. Market conditions and investor sentiment will play a significant role in determining the success of the offering.

For existing shareholders, particularly LIC, an OFS could provide an opportunity to further reduce their stake in IDBI Bank, potentially unlocking capital for other investments. However, a large share sale could also place downward pressure on the stock price in the short term. The banking sector as a whole could see a positive signal from a successful privatization, demonstrating the government’s commitment to reforming the industry. NewsBytes provides further coverage of the potential divestment.

What Happens Next?

The government is currently evaluating the feasibility of the OFS route. If approved, the Department of Investment and Public Asset Management (DIPAM) will likely initiate the process by appointing investment banks to manage the offering. SEBI approval will again be required, and the terms of the OFS, including the price floor and the number of shares to be offered, will need to be determined. A strategic sale could still be pursued after one or two tranches of an OFS, offering further opportunities to divest the government’s stake in IDBI Bank. The regulatory approvals and market conditions will dictate the timeline for these subsequent steps.