Pivot to Privatisation 2.0: Why IDBI Bank’s sale should rev up India’s push to privatise remaining non-strategic PSBs and PSUs

Columbia University, New York: In a much-awaited move, last week, the Cabinet Committee on Economic Affairs approved the sale of a combined 60.72% stake in IDBI Bank held by GoI and LIC to Canada Inc, a Canadian subsidiary of Fairfax Financial Holdings Ltd. The sale would fetch the government ₹26,544 cr and LIC ₹26,335 cr.

While some formalities remain before the sale is concluded, the decision can be hailed as a landmark step forward in GoI's larger privatisation programme. Even though IDBI was recategorised as a private sector bank by RBI in 2019 after LIC acquired a 51% controlling stake, its sale is an encouraging sign that PSBs can be sold to foreign buyers, countering the oft-repeated argument that there are not enough potential buyers of Indian banks.

Indeed, the sale of IDBI Bank to a Canadian entity comes on the heels of Japan's Konoike Transport Co Ltd's acquisition last year of Ferro Scrap Nigam Ltd, a PSU. Together, these transactions testify to the government's growing comfort with foreign investors as potential buyers of PSUs and PSBs and, conversely, to foreign investors' enhanced appetite for Indian public-sector assets. Integrating even the Indian public sector into the global economy in this manner is essential to modernising the Indian economy, provided national security or strategic concerns are not at stake.


After entering RBI's Prompt Corrective Action framework in May 2017, IDBI has undergone a remarkable turnaround. Its gross NPAs fell from 21.25%, then to 2.32% in 2025-26, while its capital adequacy ratio rose from 10.7% to 26.65% over the same period. In 2025-26, the bank's total business exceeded ₹6 lakh cr, with net profit reaching a record ₹9,513 cr.

This turnaround may have strengthened the hand of privatisation opponents. They will no doubt argue that GoI is selling the family silver to make up for its failure to raise adequate tax revenue, without asking what price the government has paid to keep that silver shining. Over the years, GoI has mobilised substantial taxpayer funds to keep IDBI Bank afloat. Between 2010-11 and 2019-20, infusions into the bank added ₹27,441 cr to the exchequer's bill. In 2017-18 alone, the infusion was ₹12,471 cr.

These infusions do not include the ₹26,367 cr that LIC has invested since acquiring control of the bank in January 2019. There is enormous wisdom in transferring the bank to private hands now, when its healthy books enable it to attract buyers. With GoI and LIC retaining 15% and 19% stakes, respectively, they also stand to share in the benefits almost certain to accrue from the bank's improved performance in private hands.

It is best to close down or sell PSBs and PSUs that regularly drain government finances and add to the taxpayers' burden, even if doing so fails to recover the original investment. Keeping them alive through repeated restructuring packages only rewards inefficiency and amounts to throwing good money after bad.

Nothing illustrates this better than Air India. When the government sold the airline to Tata Sons for ₹2,700 cr in 2022, it had to settle a whopping ₹61,000 cr in legacy debt at taxpayers' expense. Today, many PSEs continue to incur losses. For example, GoI's Public Enterprise Survey 2024-25 (Statement C, pp. 216-18) lists 63 loss-making CPSEs.

Of these, 38 incurred outright losses, and an additional 13 reported either losses or zero profits in each of 2022-23, 2023-24, and 2024-25. Closing or privatising them as soon as possible would free up valuable fiscal resources to build the country's infrastructure and social safety nets even faster.

Raising fiscal resources and avoiding sinking them into repeated restructuring packages to resuscitate sick or poorly managed PSUs represents only one source of the gains from privatisation. Another, even more important, source is the enhanced efficiency of privatised units.

More than two decades ago, Prime Minister Atal Bihari Vajpayee's government privatised 14 PSUs, transferring management control to private buyers. In a study published in 2013, economist Nandini Gupta compared the post-privatisation performance of these PSUs with that of firms in which GoI had sold only a partial stake while retaining management control.

She found that 'Compared to partially privatised firms, sales and returns to sales increase by an average of 23% and 21%, respectively, when firms sell majority equity stakes and transfer management control to private owners.' Gupta also found that privatised firms performed better than non-privatised firms in employment and worker wages. Therefore, employment and worker-wage concerns, central to the privatisation debate during the Vajpayee era and its immediate aftermath, lacked empirical support.

In 2021, GoI announced the New Public Sector Enterprise Policy, which classified public sector commercial enterprises into strategic and non-strategic sectors. Strategic sectors were confined to four: atomic energy, space and defence; transport and telecommunications; power, petroleum, coal and other minerals; and banking, insurance and financial services. The policy committed GoI to considering all PSUs in non-strategic sectors for privatisation or closure, and to retaining a 'bare minimum presence of the existing public sector commercial enterprises at Holding Company level' in strategic sectors.

It is hoped that the government will move ahead with implementing this policy as the economy's journey toward Viksit Bharat gains momentum.