Carrying forward of losses on strategic disinvestment, IDBI Bank to attract suitors: Experts

The move is also set to bring in more investors to the strategic sales where government intends to give management control to companies that will emerge as winners through competitive bids.  

“Finance Bill 2023 proposes to amend certain provisions of the Income-tax Act to facilitate planned disinvestments and make it more attractive to the potential suitors. Particularly, in the proposed strategic investment in IDBI, current provisions could act as a hindrance to the potential suitor to carry forward IDBI Bank’s accumulated tax losses,” said Sudin Sabnis, partner at Nangia Andersen LLP.  

The government has therefore proposed to amend the definition of “strategic disinvestment”, to do away with the requirement of a government sanctioned scheme in all cases and allow carry forward of accumulated losses in case of amalgamation of a banking company with a banking institution, if such amalgamation takes place with five years from the year of strategic disinvestment from the amalgamated banking company.  

“This may be a good impetus for private banks to amalgamate with IDBI Bank and boost the revenue targets from disinvestments,” Sabnis said.  

The government has received multiple expressions of interest for the strategic disinvestment of government and Life Insurance Corporation stake in IDBI Bank, the last date for which closed last month. 

Mint had previously reported that global private equity giants, including US-based Carlyle Group, Canadian billionaire investor Prem Watsa-controlled Fairfax Financial Holdings and global banks including some Russian banks, may bid for the stake sale.  

The government will adopt a two-stage process for divestment. In the first stage, bidders that meet initial eligibility criteria must clear a ‘fit and proper’ assessment by the Reserve Bank of India and get security clearance from the home ministry. Then, qualified bidders will sign a confidentiality agreement with the government and proceed to the second stage, where financial bids will be sought.       

The interest from bidders follows several changes made to government rules to sweeten the disinvestment deal. On Thursday, capital markets regulator SEBI allowed Centre to classify its stake in IDBI Bank as “public” after its stake sale on condition that its voting rights do not exceed 15%, of the total voting rights of the bank. Presently, the government is classified as a co-promoter of the lender.   

Sebi also directed the new buyer to comply with minimum public shareholding norms within one year of the sale.