Kotak Mahindra Bank seen as frontrunner in IDBI Bank sale as govt targets 2026 privatisation deadline

The much-awaited privatization process of IDBI Bank is witnessing renewed activity, with a new competitor joining the race. According to a report by NDTV Profit, Kotak Mahindra Bank has expressed interest in acquiring a major stake in the bank. The bank now appears alongside global investment firms Oaktree Capital and Fairfax, which were already seen as active bidders in earlier stages of the process.

NDTV’s earnings report highlights several challenges being scrutinized by potential bidders, the most important of which is IDBI Bank’s large market cap, which currently stands at around Rs 1 lakh crore. Taking a 60% stake at this valuation would require significant upfront capital, making it difficult for most investors to implement purely in cash. However, Kotak Mahindra Bank, which has a market capitalization of around Rs 4.14 lakh crore, may evaluate a part-equity, part-cash merger structure to make the acquisition financially viable. Such a structure would allow Kotak to use its own equity currency as part of the consideration, alleviating the capital burden.

If Kotak’s interest is confirmed, it could change the competitive landscape for IDBI Bank’s divestment. Fairfax and Oaktree have been engaged in this process for several months, but the entry of a large local private sector bank would introduce a new strategic dimension. The government could look to Kotak, with its strong retail franchise and track record of successful integrations – most notably the ING Vysya merger – as a capable steward of IDBI’s future.

Earlier this week, the government indicated that a Request for Proposal (RFP) for the sale would be issued soon. The Center has repeatedly emphasized its target of completing the privatization process by March 31, 2026. As per the current structure, the government and LIC jointly plan to divest 60.72% of their combined holdings, and transfer full management control to the acquiring company. After the deal, the government is expected to retain a 15 per cent stake, while LIC’s stake will fall to around 19 per cent.

In the first phase of privatization, Emirates NBD and Fairfax emerged as the main suitors and even conducted extensive due diligence. However, Emirates NBD has reset its ambitions in India after announcing a $3 billion investment to acquire a majority stake in RBL Bank, effectively excluding itself from IDBI’s bidding process. This left Fairfax as the most active suitor until Kotak’s name appeared in the latest media report.

In a separate company development, Kotak Mahindra Bank announced a 5-for-1 stock split on Friday. Shareholders holding one share of face value Rs5 will get five shares of face value of Rs 1 each. The bank said the move aims to improve retail participation and make shares more accessible to everyone. Kotak last carried out a stock split in 2010 and later issued bonus shares in 2015. The split also coincides with the bank completing 40 years of operations.

At the same time, the broader privatization process has progressed. A recent Reuters report indicated that the government has completed due diligence for the stake sale and intends to invite financial bids between October and December this year. The divestment was first announced in 2022, and LIC’s reclassification from ‘promoter’ to ‘general shareholder’ earlier this year was seen as a crucial step in removing governance hurdles to the sale process. This change strips LIC of board representation and strategic influence, bringing its role in line with that of a financial investor.

IDBI Bank shares closed at Rs 100.25 on the BSE, down 2.53 per cent in Friday’s trade.

(With inputs from Reuters)