The long-awaited sale of IDBI Bank, first proposed in the 2021-22 budget, is finally seeing the light of day, marking the Government’s most significant strategic divestment since Air India in 2022. On October 14, 2026, Government of India (GoI) announced a Cabinet decision to sell its controlling stake in IDBI Bank to Fairfax Financial Holdings of Canada for Rs 52,878 crore. The transaction is for sale of 60.72% of the bank’s equity, including 30.48% with GoI and 30.24% with Life Insurance Corporation of India (LIC). Post the transaction, GoI will hold 15% stake while LIC will have 19% stake in IDBI. The government is likely to get proceeds of about Rs 26,544 crore. It sends a strong signal that large state-owned assets can still attract long-term foreign capital. It will certainly give an impetus to the privatization program of India after it has struggled to meet its targets in the past years. In fact, between FY20 and FY26, the Government was able to raise just about a quarter of its budgeted disinvestment targets, reflecting persistent challenges in executing strategic sales.
Set up in 1964 as a development finance institution, IDBI became a banking company in 2004, but its subsequent journey has been plagued by rising non-performing assets, soaring losses and worsening capital inadequacy, prompting the RBI to put it under the Prompt Corrective Action (PCA) framework in May 2017. In 2019, LIC had to take a controlling stake (51%) to rescue it. Since then, IDBI has witnessed a spectacular financial turnaround, finally coming out of the PCA framework in 2021. Between FY2019 and FY2026, its gross NPA ratio declined from 27.47% to only 2.32% and net profits increased to Rs 9,513 crore from net losses of Rs 15116 crore, while its capital adequacy ratio improved from11.58% to 26.65%.
Privatisation is a very complex process involving several stages, among which valuation and determination of reserve price are the most complex. Here, GoI has revived a sick entity from extreme financial distress to turn it into a profitable, well-capitalised bank with a healthy asset portfolio before deciding to disinvest it for a handsome profit to finance its infrastructure, social expenditure, and other developmental priorities at a time when the economy is under considerable stress due to higher oil prices caused by the Iran war and a falling rupee. The sale reduces the government’s direct exposure to the risks of running a commercial bank and the possibility of future taxpayer-funded recapitalisations. The Government has long recognised the conflicts of interest in acting simultaneously as owner, regulator, and policy maker in the banking sector. During the UPA regime, we have seen the worst of the banking sector’s performance, when political pressure on lending decisions, directed credit and regular interference in management decisions had taken the banking sector to the brink, raising the NPAs to unprecedentedly dangerous levels and creating the double balance sheet problem. It took the NDA Government and the RBI a long time to nurse the public sector banks to health.
Privatisation and consolidation of the banking sector have been recommended by Narsimhan Committee and various finance commissions to bring in technology, capital, and competition to make Indian banks globally competitive. The scale and operational competitiveness of the Indian banking sector is too inadequate to finance a Bharat on the way to becoming Viksit and to compete globally; it requires a complete restructuring of the sector. GoI has already consolidated the Public Sector Banks (PSBs) but still our largest PSB, SBI, has assets worth only $781 billion in FY 2025, compared to $7.4 trillion for the Industrial and Commercial Bank of China or $4.4 trillion for the USA’s JP Morgan Chase. The acquisition of IDBI by Fairfax could bring international financial expertise and facilitate the development of a more sophisticated financial services institution in India. Fairfax has an established presence in India’s financial sector through its investment in the CSB Bank. Its acquisition of IDBI Bank could create opportunities for economies of scale, technology sharing, and stronger financial intermediation. The transaction could also signal India’s willingness to open its banking sector to substantial foreign investment. The proposed acquisition, valued at $5.56 billion, is expected to be India’s largest foreign investment transaction in the financial sector until now. According to the terms of the deal, Fairfax must cut its holding to 26% over 15 years and exit or merge its 40% stake in CSB Bank within two years. The Government will divest its remaining 15% stake in the IDBI through market sale, while LIC will manage its residual holding.
As with every privatisation, the deal is not without its share of controversies, like the correctness of valuation. In March 2026, the government invited bids keeping the reserve price at Rs 94.42 per share. Two firms, Fairfax Financial and Emirates NBD, submitted bids, but both fell below the reserve price. The government reportedly asked the bidders for matching the reserve price, which they declined, upon which the bidding process was discontinued. It may be recalled that this is not unusual in a complex privatisation process: Air India’s privatisation also required the government to abandon an unsuccessful bidding round in 2018, then substantially restructure the sale conditions before undertaking a fresh and successful disinvestment process.
For the IDBI deal, GoI appointed two professional valuation agencies which used two independent approaches using the financial accounts for FY2026: (1) the Market Multiple Method, which valued the bank as a business and (2) the Asset Valuation Method, which valued the bank’s assets. GoI kept the reserve price at Rs 75.99, the average of these two methods, and accepted Fairfax’s offer at Rs 81, which enhanced the transaction value by Rs 3,917 crore. It was pointed out that the bank’s market price was Rs 89.85 on the day before the Cabinet approval. The agreed price therefore represented a discount of approximately 9.85% to that market price, but then market prices do not necessarily represent the intrinsic value of an asset. The Rs 81 offer must be judged against the bank’s sustainable earning capacity, its adjusted net worth, the quality of its assets and the value of the controlling stake-comparison with a volatile stock-market quotation is illogical. The higher market price could have been influenced by expectations of privatisation, which fluctuated between Rs 118.38 and Rs 61.01 during the valuation period; the price of Rs 108.12 immediately before the initial bidding invitation (January 2026) had fallen to Rs 70.38 before the revised bidding invitation (May 2026). Besides, GoI and LIC together owned 94.7% stakes in IDBI Bank, which therefore had a very small free float, and the quoted market price was determined by trading in a relatively small number of shares.
Another controversy was sparked by an investigative report by Businessworld alleging that Fairfax Financial Holdings may effectively use the financial resources of IDBI itself to finance a substantial part of its acquisition. Fairfax has a 30.2% stake in IIFL Capital Services (October 2026) and 49% stake in Digit (Go Digit Life Insurance and Go Digit General Insurance). The report said IDBI Bank is expected to buy these stakes from Fairfax, which may fetch US$3 billion for Fairfax, against the total acquisition consideration of US$5.6 billion. The proceeds will then be used to finance Fairfax’s acquisition of IDBI Bank. This is not necessarily a direct loan from IDBI to its future owner but the arrangement opens up the possibility that the buyer can recycle the target bank’s own capital to fund its takeover. IDBI’s capital adequacy ratio was 26.65%, well above the regulatory minimum. Using a large part of this to buy these assets could make the bank financially vulnerable. This also creates a conflict of interest, as Fairfax would become both the controlling shareholder of IDBI and the seller of its businesses to it. There is an opportunity cost also, as IDBI’s capital could be deployed for lending to MSMEs, infrastructure, agriculture, and other priority sectors instead of acquiring Fairfax’s businesses.
The truth of these allegations may need investigation by the regulators-RIB and SEBI (and also IRDAI for digital transactions)-whose approvals to clear the sale are awaited. But one may legitimately argue that it is an acquisition of assets, not necessarily an extraction of capital. If indeed IDBI Bank pays for Digit and IIFL Capital, it will receive ownership of valuable, income-generating financial businesses in return. It is not simply transferring Rs 28,000 crore to Fairfax without consideration. There could be genuine business synergies to be harnessed through cross-selling, distribution networks, and access to IDBI’s customer base. Fairfax argues that the combination would create a broader financial-services platform by combining all its stakes in Digit and IIFL Capital Services and IDBI Bank “to create an entity that is well-positioned to participate in the continued growth and success of Indian markets,” from which even GoI and LIC stand to benefit, having retained 34% of IDBI post-sale.
Regulators must examine these allegations before giving a final nod to the sale process to ensure that IDBI must not become an instrument for financing Fairfax’s acquisition of itself. If the reported arrangement is implemented without adequate safeguards, it would undermine the government’s principal justification for privatisation-that private ownership improves governance, capital allocation, and institutional efficiency. But the opposition to the sale on grounds of propriety is largely misplaced.
The writer is a former Director General at the CAG of India, is currently a visiting Professor at the IIM, Calcutta; Views presented are personal.