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India has approved the biggest foreign takeover of a domestic lender as the government presses ahead with privatisation and consolidation in its banking sector.
Canada’s Fairfax Financial Holdings said on Wednesday it had received the green light to buy a nearly 61 per cent stake in IDBI Bank, one of India’s biggest lenders, for $5.6bn.
“This transaction represents a once-in-a-lifetime opportunity to purchase a majority interest in a bank in one of the world’s fastest-growing economies,” said Prem Watsa, chair and chief executive of Fairfax.
The deal is part of a broader push by New Delhi to privatise state-owned banks and bring in more foreign investment.
Finance minister Nirmala Sitharaman said last year the government wanted to see consolidation in the sector and create more big banks as it liquidated some of its holdings.
Recent transactions include the $1.6bn purchase of a minority stake in private-sector Yes Bank by Japan’s Sumitomo Mitsui Financial Group and a $3bn deal by Dubai’s Emirates NBD for control of RBL Bank.
This year, Mitsubishi UFJ Financial Group bought a 20 per cent stake in shadow bank Shriram Finance for $4.4bn. The Japanese group is reportedly considering taking control of the company with further capital infusion.
But the IDBI deal marks the first recent instance of a foreign investor taking over a government-backed bank.
IDBI, which has 2,100 branches and $49bn in assets, was founded in the 1960s as a state-owned development lender.
Its “poor financial health” led to repeated capital injections from New Delhi, the government said when announcing its approval of the deal on Wednesday night.
Mumbai-based IDBI was placed under greater scrutiny by India’s central bank in 2017 as the state sought to divest itself of the lender.
The approval from New Delhi “marks a significant moment in the government’s divestment efforts, as it represents strategic restructuring”, analysts at Indian financial services group Motilal Oswal wrote in a note on Thursday.
“The deal aims to strengthen the banking ecosystem and support the government’s disinvestment target for the fiscal year.”
IDBI shares rose 9 per cent on Wednesday, ahead of the government’s announcement, before declining 7 per cent on Thursday.
As a lucrative target for overseas investors, India’s banking sector has been an outlier in an otherwise dour market hit by rising oil prices and a weak rupee.
The blue-chip Nifty 50 index has fallen 12.4 per cent this year, while the bank index is down 6.5 per cent.
The deal also comes as Canada and India repair strained relations following a diplomatic bust-up in 2023, when Ottawa accused the Indian government of involvement in the murder of Hardeep Singh Nijjar, a Canadian citizen and Sikh activist, on Canadian soil.
Earlier this year, Canadian Prime Minister Mark Carney and his Indian counterpart Narendra Modi agreed to hasten trade talksaiming to seal an agreement by the end of the year.
Modi is expected to visit Canada in December.
Additional reporting by Ilya Gridneff in Toronto
Source: www.ft.com
