Fairfax gets 15 years to reduce stake in IDBI Bank to 26%

Mumbai: Prem Watsa-backed Fairfax Financial Holdings has been given 15 years by the Reserve Bank of India to reduce its stake in IDBI Bank to 26%, while the Canadian investor has two years to decide the future of Kerala-headquartered CSB Bank, with a merger or sale emerging as the two possible options, Watsa said in a conference call with analysts and mediapersons.

"We have two licences and the RBI has given us two years to make a decision as to what we do," Watsa said. "CSB - merge or sell? Those are the two options we have. We've got two years to make the decision, so we'll think through all of that very carefully."

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Fairfax has been declared the strategic buyer for the proposed sale of a 60.72% stake in IDBI Bank. Its bid valued the stake at about ₹52,878 crore, based on a price of ₹81 per share.

Fairfax currently holds a 40% stake in private sector lender CSB Bank.

Fairfax said that it plans to transform IDBI Bank into a unified financial services group spanning banking, insurance, investment banking and wealth management, bringing its interests in Go Digit and IIFL Capital under the bank's fold.

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Under the regulatory glide path for IDBI Bank, Fairfax will have to reduce its holding from around 60% to 40% in the first 10 years of acquiring the lender, and further to 26% over the subsequent five years, Watsa said. "They've given us 15 years," he said. "In 10 years, we have to go from 60% to 40%, and in the last five years, we go down to 26%. That's what the rules are today."

Watsa, however, indicated that ownership regulations could evolve over such a long period. He cited India's insurance sector, where foreign ownership limits were progressively raised from 26% to 49%, then 74%, and eventually 100%.

"These rules may change. We don't know," he said, adding Fairfax would comply with the prevailing rules.

Fairfax expects the IDBI Bank transaction to be completed as early as the first quarter of 2027, though it could close sooner, Watsa said. The group is working through the regulatory approval process and has already held discussions with the relevant authorities. "We expect the process to go as quickly as it can," he said.

Fairfax Financial proposes to contribute all its interests in Go Digit Life Insurance and Go Digit General Insurance, collectively referred to as Digit, to IDBI Bank. Fairfax India Holdings similarly plans to contribute its entire interest in IIFL Capital Services to the bank.

After completion of the acquisition and the proposed contributions, Rakesh Sharma, currently managing director and CEO of IDBI Bank, is expected to continue leading the bank's operations. Fairfax also plans to bring former CSB Bank CEO C. V. R. Rajendran into the leadership group, while former ICICI Prudential Life managing director and CEO N S Kannan will be proposed as chairman, subject to RBI approval.

Kamesh Goyal will continue to lead Digit, while IIFL Capital's existing management will remain responsible for its operations.

Fairfax said the around $5.6 billion IDBI Bank deal will be funded through a mix of holding-company cash, dividends from subsidiaries, asset sales and the contribution of its stakes in Go Digit and IIFL Capital at market value. The group had about $2.3 billion in cash and marketable securities at the holding-company level as of June 30, apart from another $2.3 billion of investments in associates and consolidated non-insurance companies.