Why controversy clouds IDBI Bank stake sale over Fairfax deal

The government has approved Fairfax's majority-stake purchase in IDBI Bank. Questions over valuation and procedure have drawn scrutiny and political opposition.

In Short

• Cabinet approved a 60.72% stake transfer for Rs 52,878 crore
• Government and LIC will retain stakes of 15% and 19%, respectively
• Initial bids fell below the original Rs 94.42-per-share reserve price

The government's decision to sell a majority stake in IDBI Bank to Canadian financial services group Fairfax Financial Holdings has come under scrutiny, with questions being raised over the valuation, bidding process and rules followed to complete the transaction.

The controversy intensified after a media report cited minutes from internal government meetings that purportedly showed changes in the valuation methodology while dealing with bids below the reserve price.

The issue has become political, with Leader of Opposition Rahul Gandhi questioning why the need to privatise a bank that has returned to profitability and raising concerns over employee protection and reservation policies.

The Finance Ministry has defended the transaction, saying the bidding process was conducted within the powers delegated to the Core Group of Secretaries on Disinvestment (CGD) and that the valuation was carried out independently with Fairfax's final offer emerging higher than the revised valuation benchmark.

Finance Minister Nirmala Sitharaman personally responded to Rahul Gandhi's allegations, calling them lies and saying that all due process had been followed in the IDBI stake sale.

Here is what the IDBI Bank sale controversy is about, the allegations and the government's response.

WHAT IS THE IDBI BANK SALE DEAL?

On October 14, 2026, the Cabinet Committee on Economic Affairs (CCEA) approved the sale of a 60.72% stake in IDBI Bank to Fairfax Financial Holdings for Rs 52,878 crore.

The transaction involves the sale of 30.48% held by the Government of India and 30.24% held by the state-owned Life Insurance Corporation of India (LIC). After the sale, the government will retain a 15% stake, while LIC will hold 19%.

The approved buyer is 10955230 Canada Inc., a subsidiary of Fairfax Financial Holdings, led by Canadian billionaire Prem Watsa.

IDBI Bank had faced significant financial stress and was placed under the Reserve Bank of India's Prompt Corrective Action (PCA) framework in May 2017 because of high non-performing assets and losses. The RBI lifted the restrictions in March 2021 after the bank's financial position improved.

According to the Finance Ministry, Fairfax's offer of Rs 81 per share was higher than the revised independent valuation benchmark of Rs 75.99 per share. The transaction is subject to regulatory approvals, including the RBI's fit-and-proper assessment of the buyer.

WHY HAS THE IDBI BANK SALE BECOME CONTROVERSIAL?

The controversy centres on how the government arrived at the final sale price of Rs 81 per share.

The government had initially fixed a reserve price of Rs 94.42 per share. However, the first round of bids, opened on March 12, 2026, failed to meet this price, with both bidders submitting lower offers and refusing to match the reserve price.

According to a report published by BW Businessworld on October 29, which cited internal notes of the Core Group of Secretaries on Disinvestment dated August 13, Fairfax submitted a revised offer on June 1. This was opened on July 13 and Fairfax was reportedly found to have offered a revised price of Rs 81 per share.

According to the Businessworld report, officials subsequently decided to undertake a fresh valuation exercise. This exercise produced a revised valuation benchmark of Rs 75.99 per share, against which Fairfax's June 1 offer of Rs 81 was accepted. This was around 19.5% lower than the original reserve price.

The investigation raised questions about the timeline of the revised valuation, particularly whether the fresh benchmark was really established independently considering that Fairfax's revised offer had already been opened.

Another issue concerns the choice of banks used for valuation. According to the internal note cited in the report, listed public sector banks were used as comparable companies, while private sector banks were excluded.

This has raised questions because the RBI has treated IDBI Bank as a private bank for regulatory purposes since 2019, following LIC's acquisition of a majority stake. The choice of comparable banks can influence the valuation benchmark.

The internal note also reportedly raised questions about the treatment of IDBI's volatile share price and intangible assets, including the methodology used to assess the bank's wider business value.

THE RAILWAY STORES CODE MYSTERY

One of the more unusual aspects of the controversy is the reported reference to the Railway Stores Code in the internal government note.

According to the BW report citing the August 13 CGD minutes, the note acknowledged that the General Financial Rules (GFR) did not contain a specific provision for the sale of government-owned shares. It then referred to provisions governing the disposal of goods and the Railway Stores Code, which deals with the auction of railway stores and scrap.

The provision reportedly cited states: "Bids lower than the reserve prices may, however, be accepted by the Depot Officer where found expedient provided the Depot Officer doing so records his reasons in writing."

The reference has raised questions about whether a provision intended for railway auctions was an appropriate procedural precedent for the strategic sale of a commercial bank.

Notably, the Finance Ministry's October 29 clarification cited powers delegated to the CGD by the CCEA in August 2017 to resolve procedural difficulties and consider deviations during strategic disinvestment transactions. The clarification did not comment on the reported refernce to the Railway Stores Code.

WHAT HAS THE GOVERNMENT SAID?

The Finance Ministry issued a clarification on October 29, defending the bidding and valuation process. Its central argument is that the initial bidding guidelines were indicative rather than legally binding rules and that the CGD had the authority to determine the procedure for the subsequent round.

The ministry said the initial bidding round was conducted by the Department of Investment and Public Asset Management (DIPAM) under internal practices that allowed flexibility in complex transactions.

"The first or initial bid round was conducted in the financial year 2025-26 by DIPAM as per its internal practices, which are in the nature of indicative guidelines and not hidebound rules or regulations," the PIB clarification said.

Rejecting allegations that the original reserve price was lowered, the ministry said the first round had ended after the initial bids were not approved and the subsequent best-offer round was a separate exercise.

"The reserve price was neither decreased, nor increased, and the first round itself became functus officio after the initial bids were not approved," the clarification stated.

Functus officio means that the first round had completed its operative purpose and no longer had legal effect.

The government also cited a CCEA decision dated August 16, 2017, which empowered the CGD to take policy decisions on procedural issues and consider deviations when necessary for effective implementation of strategic disinvestment transactions.

The relevant provision allows the CGD "to take policy decisions with regard to procedural issues and to consider deviations as necessary from time to time for (the) effective implementation of decisions of CCEA".

The ministry said the CGD exercised these powers to determine the procedure for the second or best-offer round, as DIPAM did not have a specific internal procedure for handling bids below the reserve price.

VALUATION WAS INDEPENDENTLY CONDUCTED, SAYS MINISTRY

The government said the CGD reviewed the valuation methodology in April 2026, before inviting the best offers. Independent valuation agencies began their work in May, after the financial accounts for the year ended March 31, 2026, became publicly available towards the end of April.

It also maintained that the process was double-blind, with bidders unaware of the valuations and valuers having no access to the bids.

"The process remained double blind because the bidder did not know the valuation and the valuators did not see the bids," the ministry said.

Two independent advisers used separate methodologies. The business valuation relied on the Market Multiple Method, using listed public sector banks as comparators because suitable comparable transactions were not available. The second exercise involved asset valuation using established methodologies.

Defending the choice of public sector banks, the ministry said IDBI remained overwhelmingly owned by LIC and the government, even though the RBI treated it as a private bank for regulatory purposes.

WHY DID THE GOVERNMENT AGREE TO A TAX INDEMNITY?

The ministry also defended the indemnity provided to Fairfax against certain disputed tax demands, saying it was a common demand from qualified bidders and helped encourage higher offers.

It said the potential liability under the arrangement was Rs 627 crore, while the bid-discovered price increased by Rs 3,917 crore.

"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 PIB clarification said.

The government also said it and LIC would retain residual stakes in IDBI Bank to benefit from any future increase in its value following the strategic restructuring.

WHY IS RAHUL GANDHI OPPOSING THE IDBI BANK SALE?

The transaction has also become a political issue, with Congress leader and Leader of Opposition Rahul Gandhi opposing the government's decision to sell a majority stake in the bank.

In an open letter to IDBI Bank employees on October 29, Gandhi questioned why the government was privatising a bank that had returned to profitability. He recalled meeting employees at Parliament House who questioned the decision to sell an institution they had helped turn around.

Gandhi also referred to an assurance made by the government to Parliament in 2003 that it would retain at least 51% ownership in IDBI Bank. While acknowledging that the assurance might not be legally binding, he argued that it represented a commitment made to the people of India.

He further raised concerns about the impact of privatisation on reservation policies for Scheduled Castes, Scheduled Tribes and Other Backward Classes, as well as employee service conditions, pensions and other benefits.

The government's October 29 clarification primarily addressed the bidding and valuation process and did not respond to all the employee-related concerns.

The IDBI Bank sale has therefore raised two distinct sets of questions: whether the government should privatise a bank that has recovered financially, and whether the process followed to determine its sale price was sufficiently transparent.

While the Finance Ministry has defended its decisions by citing the CGD's delegated powers and independent valuation exercises, the internal meeting minutes reported by the media have brought the bidding sequence, choice of valuation comparators and Railway Stores Code reference under scrutiny. No publicly established finding from a court or investigative agency has, however, established fraud or criminal wrongdoing in the transaction.

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