Former Secretary EAS Sarma asked the government to pause the IDBI Bank sale pending an independent inquiry. He said, “I consider this decision to be ill-advised as it involves serious legal implications.” The CCEA approved the sale of a 60.72 per cent stake to Fairfax Financial Holdings for ₹52,878 crore.
Former Secretary to government of India EAS Sarma has demanded that Cabinet Committee on Economic Affairs (CCEA) decision on October 14 to disinvest government’s and LIC’s holdings in IDBI be kept in abeyance pending an independent inquiry.
The findings should be presented to Parliament, Sarma wrote in his latest letter to Finance Minister Nirmala Sitharaman. “I consider this decision to be ill-advised as it involves serious legal implications, gross undervaluation of IDBI’s assets, and a breach of assurance given by government,” he said in the letter shared with businessline.
Sold for a ‘pittance’
Sarma recalled he had raised ‘multiple concerns’ about disinvestment in his previous letter of August 4, citing a ‘highly opaque, non-competitive environment.’ But CCEA has since approved selection of ‘M/s 10955230 Canada Inc., whose parent entity is Fairfax Financial Holdings Ltd.,’ as the strategic buyer for IDBI’s disinvestment.
Purchase consideration is ₹52,878 crore for the acquisition of a 60.72 per cent stake in IDBI Bank Ltd., comprising government’s 30.48 per cen equity shareholding and LIC’s 30.24 per cent. Sarma described this as a ‘pittance.’ LIC equity holding is funded by its millions of policyholders. In fairness to them, the government and LIC ought to have displayed a greater sense of prudence before parting with a 60.72 per cent equity holding at such a low price, Sarma said.
CCEA not ‘fully informed’
LIC has 262 million policyholders, whose funds were used to acquire its 49.24 per cent equity stake in IDBI. While disinvesting 30.24 per cent of this stake, LIC has not taken its policyholders into confidence. The transaction has reduced both the government and LIC to the status of minority shareholders, with no say in IDBI’s future policy matters. Sarma wondered whether the CCEA had been fully informed on all aspects of the disinvestment.
Citing legal objections flagged earlier, Sarma noted IDBI possesses several highly valuable land assets across the country. Several were acquired under the Land Acquisition Act of 1894 on the premise that served a “public purpose”, defined in Section 3(f)(iv) as being for a company wholly owned or controlled by government. “In other words, if IDBI were to pass into the hands of a private company, these lands should revert to the government; otherwise, the transfer would imply an outright violation of that statutory provision. The bid documents make no mention of this issue.”
Section 5(1) of the Industrial Development Bank (Transfer of Undertaking and Repeal) Act, 2003, implicitly provides that service conditions of IDBI’s employees should not be altered under any circumstances. The terms of disinvestment, as spelt out by the Department of Investment and Public Assets Management (DIPAM), violate that provision. In its anxiety to conclude the sale, DIPAM may not have apprised the CCEA of these legal implications.
Higher intrinsic value
Taking into account its operating profits from 2021–22, the first year after its exit from the Reserve Bank of India’s Prompt Corrective Action framework, IDBI has earned cumulative operating profits of ₹48,151 crore over the succeeding five years. Had the government waited for another year, IDBI might have earned substantially more in profits than the proceeds it is now receiving from the disinvestment. This indicates that IDBI’s intrinsic value is far higher than what the disinvestment proceeds suggest. The Ministry of Finance and DIPAM will have a great deal of explaining to do before Parliament, Sarma said.
Preliminary Information Memorandum inviting Expressions of Interest for disinvestment was issued on October 7, 2022. In other words, while DIPAM was dragging its feet on disinvestment process for five years, IDBI earned profits amounting to more than 90 per cent of the disinvestment proceeds. The approved bid value needs to be examined in the context of IDBI’s profitability,” Sarma averred.
Fails reservations mandate
As a result of the disinvestment, the government has also done considerable injustice to disadvantaged sections of society. Before disinvestment, the Centre and LIC held more than 90 per cent of IDBI’s equity. As a public sector entity, IDBI was subject to SC/ST/OBC reservations mandated by the Constitution and the welfare principles envisaged in the Directive Principles of State Policy.
With 60.72 per cent of its equity being privatised, the government will end these benefits, closing off employment opportunities for SCs, STs and OBCs. It will also create uncertainty for approximately 9,500 existing employees from disadvantaged sections. The workforce comprises 6,911 women employees and 884 employees with disabilities. These institutional commitments are under threat while creating uncertainty for existing employees.
It is unfortunate that the government should disregard reservations and proceed with privatisation. SC/ST/OBC employees have rightly demanded that government protect their rights, Sarma said citing businessline reports in this context. The government has ignored the demand and brushed aside their concerns.
Small investor interests
As of March 31, 2026, public deposits in IDBI stood at ₹3,47,163 crore, against the bank’s total business of ₹6,00,789 crore. Many small investors have deposited their hard-earned savings in IDBI, assuming the bank has the government’s backing. Privatising IDBI without their consent would amount to letting them down. According to IDBI’s disclosure to the National Stock Exchange on July 14, 2026, neither the bank nor its shareholders were aware of DIPAM’s proposal. Should not the small shareholders of IDBI have been taken into confidence, Sarma sought to know.
Conflict of interest
Fairfax also faces a potential conflict of interest because it has already acquired a majority stake in Catholic Syrian Bank. Fairfax announcement of its acquisition confirms its involvement. As a matter of policy, the Reserve Bank of India does not permit the same promoter to control two banks simultaneously. “The government’s decision to disinvest IDBI in favour of Fairfax is therefore, in my view, ab initio vitiated by this conflict of interest,” Sarma said. Fairfax also has significant stakes in IIFL Capital Services, IIFL Finance, 5paisa Capital and Valueattics Re, spanning financial services and insurance, he recalled. These interests could give rise to additional conflicts of interest.