India approves $5.6 billion sale of IDBI Bank control to Fairfax

India has approved the sale of a controlling stake in IDBI Bank to Canada’s Fairfax Financial Holdings for about $5.6 billion, bringing one of the government’s longest-running privatization efforts close to completion and setting up what officials say will be the largest foreign direct investment (FDI) in the country’s financial sector.

The Cabinet Committee on Economic Affairs on Wednesday, 14 October, approved Fairfax subsidiary 10955230 Canada Inc. as the strategic buyer of a 60.72% stake in the Mumbai-based lender for ₹52,878 crore, or about $5.56 billion.

The Indian government will sell 30.48% of IDBI Bank and state-owned Life Insurance Corp. of India will sell another 30.24%. After the transaction, the government will retain 15% and LIC 19%, leaving them with a combined 34% interest but no control of the bank.

Both will withdraw their nominees from IDBI Bank’s board and become public shareholders.

Fairfax will pay ₹81 a share. That values the stake at ₹52,878 crore and the whole bank at roughly ₹87,100 crore, or about $9.2 billion at current exchange rates.

The ₹81 price is above the government’s latest benchmark valuation of ₹75.99 a share but below IDBI Bank’s Wednesday closing price of ₹90.44. The shares rose about 9% before the announcement as investors anticipated Cabinet approval.

The gap between the transaction price and the market price reflects an unusually complicated valuation process. The government initially sought bids in fiscal year 2026 and set a reserve price of ₹94.42 a share.

The bids came in below that level and were rejected.

Officials subsequently concluded that IDBI Bank’s thinly traded stock had become too volatile to provide a reliable basis for valuing the company. Its share price had ranged from ₹61.01 to ₹118.38 during the valuation period.

The government instead commissioned two independent valuations based on comparable public-sector banks and IDBI Bank’s assets and liabilities, including its land and property holdings. Their average produced the ₹75.99 benchmark.

Fairfax’s ₹81 offer exceeded that figure and both independent valuations, leading the government to approve it.

Fairfax said separately that being selected as strategic buyer does not represent the final stage of the process and that no binding definitive agreements have yet been signed among Fairfax, IDBI Bank and the Indian government.

The acquisition still requires regulatory approvals, including from the Reserve Bank of India.

Fairfax, the Toronto-based insurance and investment group controlled by Prem Watsa, plans to use IDBI Bank as the center of a much larger Indian financial-services business. It said it intends eventually to contribute its interests in Go Digit General Insurance, Go Digit Life Insurance and IIFL Capital Services to IDBI Bank.

The proposed structure would give the bank operations spanning commercial banking, general and life insurance, investment banking, institutional equities, wealth management and asset management.

Fairfax said the Digit and IIFL assets would be contributed at their respective market values. Those transactions would require separate approvals from the RBI and Securities and Exchange Board of India (sebi), while the transfer involving Digit would also need clearance from India’s insurance regulator.

Fairfax cautioned that the IDBI acquisition could proceed even if one or both of those additional transactions do not.

“We are committed to building the world’s finest financial institution from India,” Watsa said in Fairfax’s announcement.

He described IDBI as a rare opportunity to acquire control of a large bank in a fast-growing economy and combine it with Fairfax’s existing insurance and investment businesses.

Fairfax also indicated that it expects continuity at the top of IDBI Bank. The group said current Managing Director and Chief Executive Officer Rakesh Sharma is expected to continue leading the combined operation.

It plans to bring former CSB Bank CEO C. V.R. Rajendran into the leadership group and wants former ICICI Prudential Life CEO N.S. Kannan to become chairman, subject to RBI approval.

Fairfax expects to finance the IDBI purchase through cash already available to the group, existing credit facilities and potentially asset sales.

One regulatory complication remains its ownership of CSB Bank. Fairfax India holds about 40% of the Kerala-based lender. Indian banking rules prevent a promoter from controlling two separate banks, meaning Fairfax will have to resolve the overlap after taking control of IDBI.

The options include selling its CSB holding or combining CSB with IDBI. Indian officials have given Fairfax as much as two years to address the issue, Reuters reported earlier.

The scale of the IDBI acquisition is far larger than Fairfax’s existing Indian banking exposure.

IDBI Bank had assets of about ₹4.44 trillion, or nearly $47 billion, at the end of June and operates more than 2,000 branches across India. Fairfax India, by comparison, had about $3.8 billion in assets at 30 June across investments that include financial services, infrastructure and other Indian businesses.

IDBI is also a very different bank from the one the government first had to rescue.

The institution began life in 1964 as the Industrial Development Bank of India, a state-owned development finance institution intended to channel long-term funding into Indian industry. It was converted into a bank in 2004.

Years of aggressive corporate lending eventually left it carrying one of the worst bad-loan burdens in Indian banking. The RBI placed IDBI under its Prompt Corrective Action framework in May 2017 after heavy losses and deterioration in asset quality. The restrictions limited the bank’s ability to expand until its finances improved.

LIC subsequently injected capital and became the controlling shareholder. IDBI was reclassified as a private-sector bank in 2019 even though LIC and the Indian government continued to own almost all its equity.

The RBI removed the bank from its corrective-action framework in March 2021. Its gross non-performing loan ratio, which stood at nearly 32% in September 2018, had fallen to 2.3% by June 2026. The turnaround is visible elsewhere in the balance sheet.

IDBI reported net profit of ₹2,115 crore for the three months through June, up 5% from a year earlier. Net interest income rose 10% to ₹3,486 crore. Deposits increased 10% to ₹3.26 trillion, while net advances expanded 22% to ₹2.59 trillion. Its net bad-loan ratio had fallen to just 0.16%.

The government formally invited expressions of interest in October 2022. Five parties responded, four passed the eligibility process and two ultimately submitted financial bids. The bidders had to clear the RBI’s fit-and-proper assessment as well as national-security screening by the home ministry.

The second financial bidder has not officially been disclosed. Reuters and other Indian media previously reported that Dubai-based Emirates NBD was among the serious contenders.

The sale also gives Prime Minister Narendra Modi’s government a major result from a privatization program that has moved far more slowly than initially envisaged.

India announced a broad policy in 2021 to reduce state ownership of businesses, including companies operating in sectors such as banking and telecommunications. Air India’s sale to Tata Group has remained the most visible transaction under that program, while several proposed disposals have taken years or stalled altogether.

IDBI is particularly significant because India’s large banks have historically remained either state controlled or domestically owned. A foreign financial group acquiring outright control of a lender with more than 2,000 branches represents a considerably larger opening than the minority investments that have traditionally characterized foreign participation in Indian banking.

It also comes during a surge in overseas investment in Indian financial companies.

Japan’s Sumitomo Mitsui Banking Corp. acquired a 20% stake in Yes Bank, while Mitsubishi UFJ Financial Group bought a 20% holding in Shriram Finance for about $4.4 billion. Emirates NBD has also pursued a multibillion-dollar investment in Indian banking.

Foreign financial groups have been attracted by India’s expanding credit market, improving bank balance sheets and the relatively low penetration of many financial products compared with larger developed economies.

Fairfax is betting that those trends have much further to run.

Its plan is not simply to extract growth from IDBI’s existing lending and deposit franchise. By placing banking, insurance and investment businesses around the same institution, Fairfax wants access to IDBI’s customer base and nationwide branch network to distribute a wider range of financial products.

That strategy could materially change IDBI’s competitive position. The bank would move from a legacy institution shaped for decades by government ownership to the center of a privately controlled financial group spanning credit, insurance and capital markets.

The government, meanwhile, is not leaving immediately. Its 15% residual stake and LIC’s 19% holding leave the state with substantial exposure to any increase in IDBI’s value after privatization. The Cabinet has already authorized an empowered ministerial group to sell the government’s remaining shares through the market later, without requiring another full Cabinet decision.

LIC will decide separately how to reduce its own holding while complying with regulatory requirements.

For Fairfax, the next hurdle is the RBI.

The central bank must review the Canadian group’s credentials again and agree on how Fairfax will comply with ownership, voting and corporate-structure requirements. Fairfax must also resolve its CSB Bank investment and secure separate regulatory clearances if it proceeds with the proposed Digit and IIFL Capital combination.