IDBI Bank may hive off physical assets

NEW DELHI: IDBI Bank’s lucrative real estate assets, including properties in Cuffe Parade, the Bandra Kurla Complex and Worli in Mumbai, may be carved out before the Life Insurance Corporation of India (LIC) is offered a controlling stake in the debt-laden bank.

“A separate entity may be spun off to manage the properties of IDBI Bank,” a top government official told ET, adding that LIC had approached the government with an offer to acquire the lender and not the other way around.

The state-owned insurer may also have the option of acquiring the properties separately or get a stake in the entity that will hold the physical assets proportionate to the holding it purchases in the lender.

At the end of March, IDBI Bank had fixed assets of Rs 6,771 crore while its market capitalisation at the Monday close was Rs 24,335 crore with the share ending at Rs 58.20 on the BSE, down 1.44 per cent. Its freehold land and residential and office buildings were valued at over Rs 4,000 crore at the end of March 2016.

“LIC had sought to acquire IDBI Bank,” said the official cited above. “This is an acquisition by LIC and not a bailout... LIC was keen to have a bank like its private competitors.”

The government is only responding to LIC’s approach, the official said. The government had announced its intent to bring down its stake in IDBI Bank below 50 per cent in the FY17 budget.

Excluding the real estate assets would make the price that much more affordable.

The acquisition is most likely to be via fresh infusion of capital in the bank but a combination of that and a stake sale is also possible, another official said, adding that all options are on the table.

“The process of transformation of IDBI Bank has already started. Government will take it forward and also consider the option of reducing its stake to below 50 per cent,” finance minister Arun Jaitley had said in his FY17 budget speech.

The government’s plan ran into opposition from employee unions. Some US funds had shown interest in taking over the stake but this wasn’t pursued.

IDBI Bank was created in 2003 through the IDBI Repeal Act that allowed the conversion of IDBI, a development finance institution (DFI), into a banking company. IDBI Bank, unlike the other state-run banks, is governed by a separate law--the IDBI Act. In the case of other state-run banks, the government has said it will not bring its stake to below 52 per cent, but there is no such restriction in the case of IDBI Bank.