IDBI Bank sells distressed portfolio worth Rs 6,151 cr to Omkara ARC

IDBI Bank is selling its portfolio of stressed assets worth Rs 6,151 crore to Omkara Asset Reconstruction Company (ARC). The move will help the government get a better valuation for its proposed stake sale in the lender, people familiar with the matter told ET.

During the interbank auction held on Saturday (August 3), Omkara ARC had submitted the highest bid of Rs 652 crore, outbidding the government-promoted National Asset Reconstruction Company Ltd (NARCL). For IDBI Bank, the sale of the distressed portfolio equates to a recovery of 10.5%, which will be reflected in its second-quarter earnings.

“The sale of the distressed portfolio will have a significant positive impact on the valuation of IDBI Bank as potential bidders were wary of taking over a bank with pre-existing loans that the bank itself has not been able to resolve for over two decades,” said an advisor involved in the transaction, who asked not to be named.

IDBI Bank and Omkara ARC did not respond to ET’s request for comment.

There have been rumours about the government selling part of its stake in the bank for over two years without much progress. In May 2021, the government said the cabinet had approved the strategic sale of its and LIC’s stake in IDBI and in October 2022, it invited expressions of interest from interested parties.

The government holds 45% and Life Insurance Corporation (LIC) has 49.24% stake in the bank. They have proposed to sell 60.7% stake to a private player with a precondition of diluting the stake to 26% over a period of time. According to a Reuters report last week, the Reserve Bank of India (RBI) has approved Fairfax Financial Holdings, Emirates NBD and Kotak Mahindra Bank as potential bidders. As a prelude to this share sale, IDBI Bank has put up for freeze Rs 6,151 crore of its legacy stressed portfolio comprising 239 accounts, which is being placed in the Stressed Asset Stabilisation Fund (SASF) – a unit that was carved out of the fixed-term lending institution when it was merged with the bank in October 2006. While inviting bids from ARC for the financial firms, the bank had set a reserve price of Rs 642 crore. In the first round, NARCL had bid slightly above the reserve price of Rs 642 crore, while Omkara ARC had bid at the reserve price. During the interse bidding, managed by EY on behalf of IDBI Bank, Omkara ARC had bid Rs 10 crore above the reserve price.

The bank has received expressions of interest from NARCL, Omkara ARC, Phoenix ARC, Asset Reconstruction Company (India), Assets Care & Reconstruction Enterprise (ACRE), JM Financial ARC, UV ARC and CFM ARC, ET reported on July 16. Other EoI applicants include special situations funds Authum Investment & Infrastructure and Alpha Alternatives, and manufacturing company Puzzolana, said the people cited above.