IDBI sale row: Against rules, officials saw Fairfax bid before fixing value

Government denies cutting the reserve price, as the controversy heats up.

New Delhi: The sale of a controlling stake in IDBI Bank to Canada’s Fairfax Financial Holdings has run into fresh controversy, with Businessworld reporting that according to an internal government note, officials opened Fairfax’s sealed bid before ordering the valuations used to judge whether the offer was fair. 

The Department of Investment and Public Asset Management (DIPAM) has defended the process, even as Opposition leaders, including CPI(M) Rajya Sabha MP John Brittas and Congress leader Rahul Gandhi questioning the deal.

The Cabinet Committee on Economic Affairs (CCEA) on October 14 approved the sale of a 60.72 per cent stake in IDBI to Fairfax for Rs 52,878 crore, or Rs 81 a share. The government is selling 30.48 per cent and Life Insurance Corporation (LIC) 30.24 per cent. The government said the bid was above a fair value of Rs 75.99 a share, the average of two independent valuations.

What the note says

According to Businessworld, a 10-page DIPAM note dated August 13 and signed by DIPAM Secretary Arunish Chawla sets out the order of events.

The first-round bids were opened on March 12. Both were below the reserve price of Rs 94.42 a share, the minimum the government was willing to accept. Business Standard reported that Fairfax’s first offer was Rs 75. “Both bidders refused to match the Reserve Price,” the note says.

Fairfax submitted a revised sealed bid on June 1. Officials opened it on July 13 and ranked it first. At a second meeting the same day, the Core Group of Secretaries on Disinvestment (CGD) ruled that the old reserve price “cannot be reused and should be discarded and disregarded.” It ordered fresh valuations.

The note quotes DIPAM’s own rulebook. The rulebook says officials fixing a reserve price must not know what bidders have offered. The note then adds, “This procedure was adopted initially, but the bids were below the reserve price.”

The CGD told the valuers not to use IDBI’s market share price, saying it had swung by “almost 100 per cent.” They were also told to compare the bank only with public sector lenders, even though the Reserve Bank of India (RBI) has treated IDBI as a private bank since 2019.

“Including the private sector banks in the pool of comparators, leads to an over-estimated reserve price,” the note says.

According to the note, KPMG India, the adviser hired to run the sale, did one of the two valuations. BDO Valuation Advisory LLP valued the bank’s assets, including land and buildings.

Fairfax’s revised bid came with a letter. The letter called the bid its “final offer” and said Fairfax would pull out if asked to raise it. The second bidder did not improve its offer.

Tax cover, money worries

After the first round failed, the government agreed to cover the buyer for all disputed income tax demands on IDBI, “whether or not recognized as contingent liabilities” in its accounts.

The note also pointed to “extraordinary fiscal strain” from the Middle East conflict. It listed costlier fertiliser and LPG, excise cuts on fuel, falling forex reserves and a weak rupee. It said the sale money would help in a year when “the budget arithmetic will be strained.”

To justify accepting less than the old floor price, the note cited the Railway Stores Code. The code lets officials accept bids below the reserve price when auctioning scrap, provided they record their reasons in writing.

Businessworld also reported that Fairfax plans to move its stakes in Go Digit and IIFL Capital into IDBI at market prices.

DIPAM’s response

DIPAM did not dispute that the note is genuine. It said its internal procedures are “indicative guidelines and not hidebound rules.” It added that a 2017 Cabinet decision lets the CGD approve departures from them.

It said the reserve price “was neither decreased, nor increased.” The first round, it said, simply lapsed once the bids were rejected.

DIPAM said the valuation method was reviewed in April, before final offers were invited, and that the valuers began work in May. The process “remained double blind because the bidder did not know the valuation and the valuators did not see the bids,” it said.

It put the possible tax liability at Rs 627 crore, against a rise of Rs 3,917 crore in the bid. IDBI was compared only with state-run banks because investors “continued to value it as a public sector entity,” it said.

Businessworld said the Rs 627 crore appears to be an estimate of likely losses, not the total tax under dispute. DIPAM has not disclosed that total.

Railway scrap: Rajya Sabha MP

Brittas had written to Finance Minister Nirmala Sitharaman on June 11, urging her to halt the sale. He said the report gave his warning “an even more disturbing dimension.”

“Since when is a national banking asset to be treated like railway scrap?” he asked in a post on X.

He said the bid was accepted after the benchmark was brought down to Rs 75.99, a description DIPAM rejects.

In his letter, Brittas said Parliament was assured in 2003, when the IDBI Act was repealed, that the government would always hold at least 51 per cent in the bank. He said the sale puts reservation and pension protections at risk for more than 20,000 employees. They include 2,923 from Scheduled Castes (SC), 1,156 from Scheduled Tribes (ST) and 5,415 from Other Backward Classes (OBC).

He also pointed to the bank’s recovery, with net profit rising from Rs 1,359 crore in 2020-21 to Rs 9,513 crore in 2025-26.

Rahul Gandhi, in an open letter to IDBI employees dated October 29, asked why a bank earning more than Rs 9,000 crore a year was being sold. He also recalled the 2003 assurance to Parliament.

The deal still needs RBI approval and is expected to close by March 2027. The KPMG and BDO valuation reports have not been made public.