The finance ministry has defended the sale of the bank and its valuation process amid questions over the privatization of IDBI Bank. The ministry said that during the sale of the bank, the reserve price i.e. the minimum fixed price was neither reduced nor increased. The entire process has been completed based on set rules and independent evaluation. The controversy started when the bid received in the first round for the sale of IDBI Bank was lower than the fixed price.

Later, bids were invited again and Canadian company Fairfax Financial Holdings bid Rs. 81 bids made. The government approved this proposal. In this deal, the central government and Life Insurance Corporation of India (LIC) are selling a total of 60.72% stake. Its total cost is said to be around Rs 52,878 crore. Let’s understand what is the controversy surrounding the sale of IDBI Bank, what clarifications have been given by the government and how Fairfax’s bid was approved.

Why the controversy over the sale of IDBI Bank?

The government and LIC are selling their stake as part of the privatization process of IDBI Bank. Initial bids were invited for this in the financial year 2025-26. According to the report, the bid received in the initial round was lower than the reserve price of Rs 94.42 per share. Hence this bid was not approved. After this, their best offers were sought from eligible bidders in the financial year 2026-27. In the process, Fairfax Financial Holdings raised Rs. 81 bids were made, which were approved by the government. From here the questions started to arise that when the initial reserve price was Rs 94.42 per share, then how was the bid of Rs 81 per share accepted? The Finance Ministry has now issued a detailed clarification on the controversy.

What did the Ministry of Finance clarify?

In a clarification issued on October 29, the finance ministry said that there was no change in the reserve price during the sale of IDBI Bank. According to the ministry, when the proposals were not accepted in the initial bidding process, the first round ended. After this second i.e. best offer process was adopted. This second process was decided by the Core Group of Secretaries (CGD) on Empowered Disinvestment by the Cabinet Committee on Economic Affairs (CCEA). The government says the process is not designed to favor any single bidder. Its objective was to get better prices for the government and LIC through competitive bidding.

How is a bank’s valuation determined?

According to the Finance Ministry, two independent consultants were engaged for the valuation of IDBI Bank. Both assessed the fair value of the bank in different ways. Market multiple method was used for business valuation. This compared IDBI Bank with listed government banks. In this method, the fair value of a company is estimated based on its financial condition and the value of similar companies in the market. On the other hand, a different process was adopted for asset valuation. In this, the bank’s assets and potential liabilities were considered. The government maintains that both the valuation processes were independent of each other and were not influenced by any one party.

What was the double blind procedure?

The Finance Ministry has also mentioned the double blind process in its clarification. This meant that the bidding company was not aware of the valuation and the bid price was not disclosed to the valuation agencies. Only CGD had complete information. The group compared the bid price and independent appraisals to determine whether the offer was fair. The government claims that this arrangement has prevented any possible influence between bidders and valuation agencies.

Govt Rs. How did the additional profit of 3,917 crores get?

The Finance Ministry said that through the new bidding process, the realized value of the deal would be Rs. 3,917 crore has increased. Along with this, the government has also arranged to provide limited protection i.e. tax indemnity to the buyer for potential liability related to disputed tax demands. The potential tax liability under this arrangement is around Rs. 627 crore is estimated. The government says that this liability is a low probability situation and the buyer will be paid only when the relevant additional tax is actually payable.

According to the ministry, an additional value of Rs 3,917 crore has been realized against a potential liability of Rs 627 crore. This has increased the value of the deal for the central government and LIC. Even after this deal, central government and LIC will retain some stake in IDBI Bank. According to the government, the value of the bank may increase due to strategic restructuring and better business in future. In such a situation, the central government and LIC can benefit more from the remaining share. Therefore, this deal is not only limited to selling the existing stake, but is also part of the bank’s future business and value enhancement strategy.