Fairfax to Buy IDBI for $5.6 Billion in Biggest India Bank Deal

Canadian billionaire Prem Watsa’s Fairfax Financial Holdings Ltd. will acquire a stake in IDBI Bank Ltd. for 528.78 billion rupees ($5.6 billion), making it the biggest foreign investment in India’s rapidly growing financial services sector.

Fairfax Financial will own 60.72% of IDBI Bank, according to Arunish Chawla, secretary at the Department of Investment and Public Asset Management, valuing the lender at around 871 billion rupees. The sale is at a 11% discount to Wednesday’s closing price of 90.4 rupees with the Indian government and Life Insurance Corp. set to retain a total of 34% stake in the lender.

Fairfax joins a wave of foreign firms expanding in India, drawn by the burgeoning wealth class and the world’s fastest-growing major economy. Japanese lenders alone spent more than $6 billion combined, buying stakes in Indian banks last year, including deals by Mitsubishi UFJ Financial Group Inc. and Sumitomo Mitsui Financial Group Inc.

Prime Minister Narendra Modi’s government has been looking to sell the Mumbai-based lender for several years, part of its efforts to pare state ownership in the banking sector. But the sale had often run into hurdles such as delays in securing regulatory approvals.

Fairfax, whose earlier bid for IDBI Bank failed to meet the government’s reserve price, was considering increasing its offer by a few rupees per share, Bloomberg News had reported. On Wednesday, the ministry said it had arrived at a fair value using two different methods — carried out by two professional valuation agencies — and which pegged the average price at 75.99 rupees per share.

The latest breakthrough in the IDBI stake sale will be seen as a shot in the arm for Modi who is seeking to convert India into a developed economy by 2047. To achieve his ambition of boosting gross domestic product 10 times to about $30 trillion by 2047, funding from banks must increase to about 130% of GDP from around 56%.

Indian authorities have been discussing ways to create stronger and larger banks, including more foreign participation in India’s financial sector. It is also toying with the idea of merging state-run banks to create financial giants.

Accelerated Sales

In recent months, India has also accelerated stake sales in some of its largest state-owned companies, helping push disinvestment proceeds above the total raised in each of the past three fiscal years. The government is seeking to shore up finances as the oil-importing nation faces mounting fiscal strain from the energy shock spurred by the Middle East war.

Proceeds from the IDBI Bank stake sale would provide a significant boost to the government’s goal of raising 800 billion rupees through asset sales this fiscal year.

“Assuming the deal completed in FY27, then total disinvestment receipts of the government will exceed budgeted target of 800 billion rupees,” said Gaura Sen Gupta, chief economist at IDFC FIRST Bank. “This will counter some of the fiscal slippage risk facing the centre due to higher fertiliser subsidy cost as well as excise duty cut on petrol and diesel.”

The acquisition of India’s sixth-largest private bank by assets significantly expands Watsa-owned Fairfax’s India presence. Fairfax already has investments in CSB Bank Ltd. and shadow lender IIFL Capital Services Ltd.

Fairfax, will have to merge or exit its 40% stake in private sector CSB Bank Ltd., within two years of signing the share purchase agreement, Chawla said.

IDBI Bank, once burdened by heavy bad loans, has emerged from a major cleanup, and returned to profitability in recent years after capital support and aggressive recoveries helped it cut non-performing assets sharply.

Photo: The IDBI Ltd. bank headquarters in Mumbai / Bloomberg