IDBI Bank soars 9 percent on reports of Government's stake sale to IFC

The government is in talks with the International Finance Corp, a World Bank arm on the disposal of a stake in IDBI Bank, according to media reports. According to the reports IFC which invests in the private sector may pick up a 15 percent holding in the company. The government currently holds 76.5 percent stake in the bank and plans to bring it down to 49 percent via strategic sale.

The Prime Minister's Office is said to be keen on getting the IDBI deal done quickly and has asked the finance ministry to conclude it by December. The Government wants to raise a record Rs 69,500 crore this fiscal year from disinvestment. Of this, it has thus far raised Rs 12,600 crores only. Strategic sales such as that of the IDBI Bank could help make up for some of the shortfall, besides bringing in quality investors.The IDBI Bank stake sale is primarily aimed at professionalising it on the lines of private counterparts such as the Axis Bank.

Unlike other state-run banks, IDBI Bank is governed by a separate legislation. The IDBI Act allows the government to lower its stake to 49%. This means the government can lower its holding in IDBI to give it a private sector character without having to go through any legislative changes.

The Company reported a flat profit in Q2FY16 rising by a mere 1 percent Y-O-Y. While the company's Net Interest Margin rose by 14.6 percent to Rs 1,611.8 crore from Rs 1,406.2 crore a year earlier, the NPA's were up 19 percent Y-O-Y due to thr additon of more stressed loans. The Provisions shot up by 30 percent Y-O-Y.

IDBI Bank's share has soared from a 52-week low of Rs 52 per share in August to touch a 52 week high of Rs 95.10 in trade on the Bombay Stock Exchange, following reports of the government's strategic sale plans. Since the news related to the sale of government stake came in, the stock has been on a run giving a whopping 82 percent return and the rally is unlikely to stop anytime soon.With the Finance Ministry's resolve to complete the strategic sale by end of this fiscal, stock would see more upside from these levels.

The lender was created in 2003 through the IDBI Repeal Act, which allowed for the conversion of IDBI, a development finance institution at the time, into a banking company.

The promoters holding in the company stood at 76.5 % while Institutions and Non-Institutions held 13.88 % and 9.63 % respectively.