• Fairfax Financial has been selected as the buyer of 60.72% of IDBI Bank, a process that began in January 2019 when LIC took a majority stake.
• The deal helps the Centre meet its full-year disinvestment target of ₹80,000 crore, with half the year still left.

• Nationalisation took banks into state control, and the IDBI sale is a move in the opposite direction.

Nationalisation (1969 and 1980)

• 1969: The Government nationalised 14 major private banks on 19 July 1969.
• 1980: 6 more banks were nationalised, and public sector banks held about 90% of the banking sector by 1991.
• Why it was done: The aim was to spread banking to rural areas and small borrowers, direct credit to priority sectors such as agriculture and small industry, and end the control of banks by a few business houses.
• Legal challenge: The Supreme Court struck down the first law in the R.C. Cooper case (1970), also called the Bank Nationalisation Case, on the compensation provisions. Parliament then passed the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970.

After 1991

• Reforms: The Narasimham Committee led to listing of public sector banks and the entry of private banks. The government’s holding fell in listed banks, but the law still requires it to keep at least 51% in nationalised banks.
• Consolidation: Mergers in 2017 and 2019-20 cut the number of public sector banks to 12.

Where we stand now

• All 12 public sector banks remain majority government-owned. The Budget 2021-22 announced the privatisation of two public sector banks, but no decision has been taken.
• The IDBI sale would be the first sale of control of a government-owned bank to a private buyer.

• What it is: Disinvestment means the government selling its shareholding in public sector companies. A strategic sale also hands management control to the buyer.
• Why it is slow: Bids had to be invited twice because the first set were well below expectations. Two valuation methods gave an average of ₹75.99 per share, and the winning bid was ₹81.
• Few deals follow: The long process means the IDBI sale is unlikely to lead to many more deals. In nine of the last 12 years, the Centre earned more from dividends than from selling shares.

• Rising bad loans: Its bad-loan ratio rose from around 2010 and was worse than other banks. By September 2018, nearly one-third of its loans had turned bad.
• Corrective framework: It stayed under a corrective framework from May 2017 to March 2021, posted a loss of nearly ₹35,000 crore and saw deposits fall 14%.
• Shrinking share: Its share of bank deposits fell from 3.7% (March 2010) to 1.3% now, and of loans from 4.3% to 1.2%.

• Prompt Corrective Action (PCA) is the RBI’s framework that restricts lending and dividends for banks with weak capital, high bad loans or poor profits.
• The RBI must find a buyer “fit and proper” before it can hold a significant stake in a bank.
• The Department of Investment and Public Asset Management (DIPAM) handles disinvestment.
• The Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 governs nationalised banks.

• It raises money for the Centre without borrowing and brings private capital and management into a weak bank.
• It helps the Centre meet its yearly disinvestment target early.
• It reduces the Centre’s and LIC’s exposure to a bank that needed support for years.
• It shows that large disinvestments are possible when a clear process and a credible buyer are in place.

• Low bids and valuation gaps forced the process to be repeated, which delayed the deal by years.
• Regulatory approvals are still pending, and the deal can still face delays.
• The bank’s weak past, with high bad loans and shrinking market share, made it hard to sell.
• Dividends are often a larger and steadier source of revenue than sales, which limits the value of disinvestment as a revenue tool.
• Selling control of a bank raises concerns about the public purpose of banking, such as rural reach and priority sector lending.