IDBI Bank sale: The price is only the first test

The government has offered a detailed defence of the sale price. Both initial bids fell short of the first reserve price of ₹94.42 a share. Fresh valuations by KPMG India, using market multiples, and BDO Valuation Advisory LLP, using asset valuation, produced an average benchmark of ₹75.99. Fairfax’s offer of ₹81 a share exceeded this benchmark. On paper, the price appears reasonable.

Yet valuation is not merely a technical exercise. IDBI Bank’s market price swung between ₹61.01 and ₹118.38 during the valuation period. Excluding this volatility from the final calculation may be justified. However, when private valuations take precedence over the market price discovery of a listed public sector bank, the assumptions underpinning those valuations warrant public scrutiny. Why should the public accept the average of two undisclosed estimates as the best measure of a public bank’s worth? The underlying assumptions remain confidential.

The government need not disclose bidder-sensitive information, but it should provide greater transparency on the valuation methodology. Which peer banks were considered? How were land and intangible assets valued? What discounts were applied? What assumptions were made about near-term and terminal growth rates?

Questions also arise over the degree of competition. Of the five parties that initially showed interest, four qualified, but only two submitted final bids. While this does not invalidate the auction, it weakens the argument that competition alone addressed every concern about the price.

The nature of the transaction also matters. The ₹52,878 crore will accrue to the government and LIC, rather than flow into IDBI Bank as fresh capital. The government expects Fairfax to bring in capital, technology and better management. But an expectation is not a binding commitment.

The public should therefore know what Fairfax has actually promised. How much fresh capital will enter the bank, and by when? How much will be invested in technology, cybersecurity and staff development? This is where ESG (environmental, social and governance) considerations become central, not as a fashionable label but as a framework for assessing whether the transaction creates durable value.

Beyond the price

Governance is the first test. Fairfax has proposed contributing its interests in Digit Insurance and IIFL Capital to IDBI Bank. Both transactions require separate regulatory approvals. Fairfax says the assets will be contributed at market prices. While this could create a useful financial group, it also raises potential conflict-of-interest concerns. Who will appoint the valuers? Will IDBI issue shares or pay in cash? Who will bear the integration costs? Can independent directors reject a proposal from the controlling shareholder?

The social risks are equally significant. New technology can improve service delivery, but it can also lead to branch closures and job losses. Higher sales targets may encourage mis-selling of insurance or investment products. Older, rural and less digitally confident customers could bear the cost of greater "efficiency". Priority-sector lending requirements, covering agriculture, MSMEs, housing, education, social infrastructure and renewable energy, will continue to apply after privatisation. However, regulatory compliance alone cannot guarantee fair and accessible customer service.

Environmental risks also deserve attention. Climate risk is a precursor to credit risk. Floods, heat, water stress and transition pressures can weaken borrowers and damage collateral. The Reserve Bank of India's climate framework also emphasises governance, strategy, risk management, metrics and targets. IDBI Bank had begun measuring its financed emissions, covering certain borrowers among the 1,000 largest listed companies while excluding non-banking financial companies (NBFCs). Significant gaps therefore remain, particularly in relation to unlisted companies, agriculture and smaller businesses. The new owner should expand this exercise, but there is no clarity on whether it intends to do so.

Accountability after the sale

The government should publish a three-year public scorecard to enable scrutiny of the bank's post-privatization performance. It should track fresh capital infusion, bad loans, customer complaints, branch access, employee outcomes, related-party transactions and financed emissions. Crucially, it should distinguish between commitments made and outcomes delivered.

Buyer selection is not the same as deal completion. Fairfax itself has said that definitive agreements have not yet been signed and that further approvals remain pending.

The sale price matters. But it is only the first test, particularly when the asset being sold is a public sector bank. The more consequential question is whether IDBI becomes safer, fairer and more useful under its new ownership. Public ownership may diminish, but public accountability should not.

Dr Meheresh Masanpally is an assistant professor of Strategy at IMI Kolkata and Dr Sayantan Kundu is an assistant professor of Finance at IMI Kolkata. The opinions and views expressed are personal.