IDBI Bank is going, going, going…

Billed as a test case for bank divestment, it is stuck for four years

Over the past few days, after the miseries in March 2026, there are several positive news that have emanated from official agencies. Two days ago, a core group of secretaries, which is headed by the cabinet secretary, discussed the future roadmap of how to privatise IDBI Bank after past failures. Before the meeting, Finance Minister Nirmala Sitharaman indicated that the so-called strategic sale, which includes a change in ownership and management, was on course. “There is no halting. It will happen,” she said. Now, the new timelines indicate that the process will be complete by September 2026.

One of the prominent issues relates to valuation, or rather, the mismatch between what the government expects and what the willing investors are ready to pay. In March 2026, the plan was postponed when the private bids were below the expected reserve price, or the minimum sale price that was officially decided. What is at stake is a possible sale of either a part or full of the just over 60 per cent stake, which is jointly held by LIC and the government. It is believed to be a test case for both divestment and banking reforms.

Hence, the core group is expected to review the valuation norms, and tweak them if necessary, and revise the timelines. However, experts contend that this is possibly the worst time to sell a public asset, especially since the stock markets are down because of the ongoing Iran war, and there are pressures related to future corporate earnings in general. To fix a reserve price before the end of the conflict may result in a similar valuation gap, as was evident in March. It may be better to wait for the markets to perk up, which they will immediately after peace because of excitement, and if crude oil prices slide. IDBI Bank’s share price gyrations over the past 10 months indicate the state of Indian equities, as well as the challenges faced by the bank, many of which were driven by the divestment process, or the lack of it.

In June 2025, the price quoted over Rs 100 per share, when the privatisation talks engulfed newspaper headlines. It dropped to Rs 85 by August 2025, and went up again to over Rs 100 in November the same year. This was due to the uncertainty about the stake sale, with the up-down movements forced by positive or negative news.

By the time private investors submitted their financial bids by February 2026, as reported by the media, the share price reached a 52-week closing peak of Rs 116 (intra-day 52-week high is Rs 118). Then it dropped like a hot potato. As news emanated that there were problems, and the bids were rejected in March 2026 because of low valuations, the stock slumped to a low of just over Rs 60 per share (52-week low is Rs 61).

Thus, in a matter of one month, the price was down by almost 50 per cent. One can assume that the free fall was partially due to the divestment blues and the bleeding due to the Iran war.

Only during the month of April 2026, IDBI Bank’s stock price went northwards, and crossed Rs 76, or a gain of 25 per cent. This may be because of speculation that divestment was merely postponed, and not given up. Of course, the share gained further last week as the indications became more positive. An hour before the close of trading yesterday, the stock was down one per cent despite the news of the fresh official talks to take the divestment forward. After the initial enthusiasm, investors’ energy may be dulled by lack of a concrete timeline, or decisions that clarify the future roadmap.

IDBI Bank’s downfall started 15 years ago when, thanks partially due to mismanagement, and the Great Recession and financial crisis of 2008, the bank was saddled with rising bad loans, and weak financials. In less than a decade, by 2019, the government asked the state-owned insurer, LIC, to step in, acquire a majority stake, and assume management control. By late-2022, it was decided to dispose of the just over 60 per cent stake held together by LIC and the government. By early-2023, private investors lined up with expressions of interest which, according to a report, indicated “initial enthusiasm.”

According to a recent media report, “The privatisation of IDBI Bank is a key test case for India’s broader disinvestment strategy, particularly in the financial sector.” In effect, if successful, it will “signal investor confidence in banking reforms, set precedent for future PSU bank privatisation, and help the government to unlock value from holdings.” However, the road ahead is full of obstacles because of the geopolitical disruptions, state of the stock markets, and uneasiness among the foreign investors about valuations and corporate earnings, despite the deep corrections in Indian equities over the past few months.

Although the bank’s Q4-26 results are not out, the financials have wavered over the past few quarters. Total revenues have dipped thrice, quarter-on-quarter, and zoomed twice in the past five quarters (from Q2-25 to Q3-26). Similarly, net profits during the same period went up continuously for four quarters, quarter-on-quarter, and doubled from over Rs 1,800 crore in Q2-25 to Rs 3,600 crore in Q2-26. In Q3-26, the net profits thudded down to just above Rs 1,900 crore, or almost back to a year ago (Q3-25). Uncertain revenues and a sharp dip in net profits in the December-25 quarter have not enthused the investors much.

According to AI-assisted search, although IDBI Bank has improved the quality of its assets and loans, especially since the LIC takeover, it “faced declines in core income.” For example, in Q3-26, there were “significant drops in its core net interest income, which fell by 24.1 per cent year-on-year…. This decline is attributed to lower interest earned and increased funding costs.” Yet, bad loans are down by a percentage point between Q3-25 and Q3-26, and advances are up by 14 per cent. Thus, the bank is possibly squeezed between the good and bad.

The fact is that LIC is more of a passive investor and uses its huge cash flows to hold large stakes in renowned firms. In the past, though, in the pre-reform days, when state-owned shareholders dictated board decisions and influenced corporate strategies, LIC was indeed seriously involved in the management of several firms. But times have changed, and so has its outlook. Thus, it is imperative for LIC and the government to sell their stakes in IDBI Bank, and soon.