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Summary
The government’s decision to mark time on IDBI Bank’s privatization is puzzling. Its rationale is clear and the stage for its sell-off was set years ago. Low bids should not get in the way of the process as revenue maximization was never the idea.
It is unfortunate that India’s government has decided to call off the privatization of IDBI Bank for now, as reports indicate. The disappointment is that this decision was reportedly taken in response to poor investor interest—as seen in low bids for the 61% stake on offer to corporate bidders.
There are many reasons behind the process of what we in India like to call ‘disinvestment,’ a euphemism coined as a political shield against critics. The money it raises is just one reason. It pales in front of another motive, one that has long been regarded as a free-market principle.
Namely, that governments should not be in any business that the private sector can do as well, if not better. It was this aspect of India’s market reform agenda that led successive administrations to disinvest in a host of state-run undertakings across sectors over the past three decades. It was an exercise that culminated in the most difficult and perhaps controversial sell-off of all, that of Air India in January 2022.
For a government that has been keen to demonstrate its ability to bite the bullet on contentious reforms such as those related to labour, its call on IDBI Bank is puzzling. It risks sending mixed signals on the Centre’s commitment to structural reforms.
This puzzle is deepened by the government’s rejection of revenue maximization as its main motive for selling stakes in publicly held enterprises.
To be sure, banking is a strategic sector—especially in an emerging economy like ours where public ownership of banks helps serve policy ends like financial inclusion. But we already have 12 public sector banks (PSBs) with a strong presence in this field; they account for 53.5% of all loans, against private lenders’ share of 41.5% (at the end of 2025), and about 60% of all bank deposits, according to a 2024 State Bank of India report.
In such a scenario, turning IDBI Bank over to private control would not have upset the applecart of PSB dominance of Indian banking.
Moreover, the process has long been in the works. After state-owned LIC bought a 51% stake in January 2019 when IDBI Bank was under stress, the cabinet committee on economic affairs gave an in-principle nod for its privatization way back in 2021.
By then, an equity issuance had taken LIC’s share below half. The plan was for the government to sell 30.48% of the bank’s equity pie, with LIC offloading another 30.24%.
Finance minister Nirmala Sitharaman’s budget speech on 1 February five years ago had set a target for the sale’s completion within fiscal 2021-22—only to have the deadline breached time and again.
Ironically, foreign investors have lately shown considerable interest in our banking sector. The Reserve Bank of India’s (RBI) approval of Warburg Pincus’s 10% investment in IDFC First Bank in July 2025 was followed by a significant stake taken by Japan SMBC in Yes Bank last September.
Last October, RBL Bank received funds from Emirates NBD, which was reportedly also one of the bidders for IDBI Bank in the aborted auction. Earlier this year, a Blackstone affiliate obtained regulatory approval for investing in Federal Bank.
While some of these investments could be attributed to RBI’s recently relaxed stance on foreign ownership, it also reflects greater global interest in the country’s banking space. All of this gives the Centre’s decision to mark time on IDBI Bank’s sell-off an air of mystery.
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