IDBI Bank FPO to be delayed beyond March 2021

IDBI Bank FPO may be delayed beyond 31 March 2021, reports The Economic Times citing unnamed sources. The FPO of public sector bank was earlier planned during the current fiscal year 2019-20. However, the divestment is likely to be delayed now amid the volatile market conditions and negative sentiments.

Life insurance major LIC picked up 51% equity stake in IDBI Bank early last year as part of the government’s major rejig in the struggling PSU bank. The government of India currently owns around 46.5% stake in the bank.

LIC planned to cut its stake in IDBI Bank even prior to FPO and has been waiting for the bank to exit RBI’s prompt corrective action (PCA) framework. Under PCA, banks are supposed to conserve capital while also placing curbs on dividend payments, branch expansion, management compensation and credit growth.

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For the quarter ended March 2020, the bank posted a profit of INR135 crore (INR1.35 billion), marking a departure from a loss of INR4918 crore (INR49.18 billion) in previous year. IDBI Bank is hopeful of getting out of PCA restrictions on the back of improved profitability, even though it is not yet fulfilling all requirements to exit the framework. Nevertheless, some other banks have also exited RBI’s restricted despite not meeting all the requirements. As a result, IDBI Bank indeed has a chance.

LIC mega IPO delayed too

IDBI Bank’s exit from PCA framework is going to be positive for LIC which is also looking to list itself after cutting stake in IDBI Bank. Similar to IDBI Bank FPO, LIC’s listing also appears to be a distant idea given the poor market conditions following the outbreak of Coronavirus disease.

LIC’s enterprise value of INR36 lakh crore (INR36,000 billion) means that a 10% share sale will take LIC IPO size to INR3.6 lakh crore (INR3,600 billion). This is quite big a number and will need exceptionally strong market sentiments and institutional support to succeed. To put its size into perspective, India’s largest IPO so far is of Coal India which raised INR15,200 crore (INR152 billion) in 2010. This is a similar problem faced by Reliance Jio Platforms which is planning to tap overseas markets for listing.