IDBI Bank shares fell 6.6% on Thursday, partially unwinding the previous session’s gains, after India approved the sale of a controlling stake in the lender to Fairfax in a $5.56 billion deal, the nation’s biggest ever cross-border bank deal.
The stock was trading at 84.45 rupees as of 10:02 a.m. IST, set for its worst day in over a month. IDBI Bank shares surged as much as 12.9% on Wednesday ahead of the announcement of the sale of a 61% stake in the lender, before ending 9% higher.
“The news is materially positive for the bank and the market reaction today looks nothing more than a simple case of profit taking,” said Aishvarya Dadheech, founder and CIO at Fident Asset Management.
Fairfax will offer 81 rupees per share for IDBI Bank, above the benchmark price of 75.99 per share determined by the government based on fair valuations, but a 10.4% discount to the lender’s closing price on Wednesday.
The shift of ownership could support a gradual re-rating of IDBI Bank toward private-bank valuations, subject to improvement in growth and return ratios, according to analysts at ICICI Securities.
A potential merger with CSB Bank could add southern-market strength and a more granular franchise, they added.
Fairfax currently holds a majority stake in CSB Bank. India’s banking regulations do not permit one investor to have majority shareholding in multiple banks.
Reuters reported in August that Fairfax would get two years to consolidate its holdings, either via a merger or a sale.
Banking sector shuffle
Analysts say the broader trend of more foreign ownership in Indian banks is positive for the sector. IDBI Bank’s acquisition fits a pattern of changing ownership in India’s financial services industry, with strategic investors increasingly entering the sector, Jefferies said in a note.
It comes alongside a churn in top management at large Indian lenders such as HDFC Bank and Kotak Mahindra Bank.
“This will keep attrition levels in the industry relatively high and may keep their competitive positioning quite dynamic,” analysts at Jefferies said.
The sale follows investments by Emirates NBD in RBL Bank, Sumitomo Mitsui Banking Corp in Yes Bank and MUFG in Shriram Finance, signalling growing overseas investment in Indian lenders after a period of steady growth and clean balance sheets.
“This is yet another example that the governmental and regulatory ecosystem is increasingly intent on allowing foreign players in Indian banking,” said Shivaji Thapliyal, head of research at YES Securities.
Foreign equity investment in lenders could help finance loan growth across corporate, MSME and retail segments as India’s funding needs expand, he added.
Reuters
