FinMin defends IDBI Bank stake sale valuation, says panel discretion raised deal value by Rs 3,917 crore

"The reserve price was neither decreased, nor increased, and the first round itself became functus officio after the initial bids were not approved." On October 14, the Cabinet Committee on Economic Affairs approved the strategic privatisation and sale of a combined 60.72% stake in IDBI Bank to Canadian investment firm Fairfax Financial Holdings. The total value of the stake sale stood at approximately Rs 53,000 crore, with the approved acquisition bid priced at Rs 81 per share.

According to Thursday’s press release, the first or initial bid round was conducted in the financial year 2025-26 by DIPAM as per its internal practices developed over a period of time, which are in the nature of indicative guidelines and not hidebound rules or regulations. "The press note dated October 14 clearly explains that there is no a-priori benchmark for bidding. The bidders do their own valuation and submit their bids in a confidential manner.

Independent agencies are hired to do a fair valuation of the enterprise contemporaneously, which is then used as a comparator to assess the reasonableness of the bids submitted. The bid discovered price and the comparative valuation can, therefore, be above or below each other," the release said. There is no procedure prescribed to handle this situation internally within DIPAM and special powers have been delegated to the Core Group of Secretaries on Disinvestment (CGD) by the Cabinet Committee of Economic Affairs (CCEA) for this purpose, the release said.

How was the valuation methodology approved? The ministry said that the entire valuation methodology was reviewed by the CGD in April, 2026 before the invitation of best offer bids. "Since the comparator used for valuation has to be contemporaneous with the bids received, and March 31, 2026 closing financial accounts were released in the public domain in end-April, the independent valuation agencies had started working on the revised valuations in May, 2026 itself.

The process remained double blind because the bidder did not know the valuation and the valuators did not see the bids. It is only the CGD which gets to see a complete picture and compares the bids with fair valuations to take a final call on the reasonableness of the bids submitted." Further, the ministry explained that the valuation was carried out by two different advisers, independent of each other, using independent and distinct methodologies.

The Business Valuation is always done through the Transaction Adviser as per the protocol, who, given the complex nature of this transaction, further appointed professional experts trained in the Market Multiple Method. "To explain briefly, the Market Multiple method is of two sub-types: the Comparable Company Method and the Comparable Transaction Method. Since suitable comparable transaction were not available, comparable companies’ method was used, which in this case were all the listed public sector banks.

It is pertinent to mention here that the IDBI was a government ‘owned’ banking company till 2019, but became a government ‘controlled’ banking company after the LIC acquired majority stakes in 2019. Since there is no specific regulatory protocol for this situation, the RBI started treating it as a private bank only for regulatory purposes, even though the ownership stayed overwhelmingly with the LIC and the GoI, and the market investors continued to value it as a public sector entity," the release said.

The Comparable Company Method is a relative valuation technique used to estimate the fair market value of a business by comparing its financial metrics against similar, publicly traded peer companies. The Asset Valuer also used robust and time-tested methodologies, including additional value for disputed tax demands, which were indemnified as a common demand of the qualified bidders to nudge the bid offer upwards, the release said.

"This remains a low probability event and revenue neutral for the government, as only the additional tax demand, if paid at all, will be eligible for reimbursement. The potential liability that could arise on this account was only Rs. 627 crores while the bid discovered price enhanced by Rs 3,917 crores enhancing the value of the transaction for the GoI and the LIC." The details of the volatile stock price of the narrowly traded IDBI stock and why it was discarded are well explained in the press note date October 14.

"The GoI and the LIC retain residual shareholdings to get further benefit from the upside that is expected from the value enhancement following strategic restructuring of the IDBI Bank going forward in future," the release said. The clarification follows a BW Businessworld report published on October 29, which cited an internal note of the Department of Investment and Public Asset Management (DIPAM), dated August 13 and signed by DIPAM Secretary Arunish Chawla.

According to the report, after both first-round bids fell short of the Rs 94.42 per share reserve price in March, officials opened Fairfax Financial’s revised bid on July 13 and, the same day, discarded the original reserve price and ordered fresh valuations under revised methodology. The report alleged that valuers were directed to set aside IDBI’s market price and exclude private sector banks as comparators, producing a benchmark of Rs 75.99 a share, below Fairfax’s Rs 81 offer that the Cabinet approved in October. It also flagged the government’s decision to indemnify the buyer against disputed income tax demands.