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BW Businessworld

IDBI Bank: A Tough Flight Path

The bank's stock rises on talk of the central government reducing its shareholding, but unions oppose divestment

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IDBI Bank continues to hit the headlines. It shared media-space with Vijay Mallya last fortnight. Now talks of divestment of the Centre’s stake of 80.16 per cent to under 50 per cent has got the bank unions' goat.

But first the good news (relatively). IDBI Bank's shares went up after it got the nod to raise Rs 850 crore through a preferential allotment of shares to Life Insurance Corporation (LIC). It's down from the earlier Rs 1,500 crore as the Securities and Exchange Board of India has made it clear LIC can hold only around 15 per cent. The bank's stock ended at Rs 70.2, up by Rs 3.05 or 4.54 per cent from its previous closing of Rs 67.15 on the BSE. The scrip opened at Rs 69 and touched a high and low of Rs 71.2 and Rs 68.6 respectively.

As for the stand-off with bank unions, that over a commitment given by then Finance Minister Yashwant Sinha in the Lok Sabha (8th December 2003) and Rajya Sabha on 15th December 2003 that the Centre shall, at all times, retain its share-holding at not less than 51 per cent. Accordingly, it is provided in Clause 4 of the Articles of Association of IDBI Ltd (IDBI Bank) that "the Central Government being a shareholder of the Company, shall at all times maintain not less than fifty one per cent of the issued capital of the company". Mint Road on its part (letter dated 15th April 2005) advised IDBI Bank that in view of the assurance given by the finance minister, it is categorised under new sub-group "Other Public Sector Banks."

The bank though seems oblivious of the mess it is in. In its Annual Report for 2014-15, it holds forth on its brand building efforts.

It says it led to an improvement in the rankings by Millward Brown (Brand Z), Interbrand, Brand Finance and Brand Trust Report. As per Brand Z, the bank occupied the 39th position among the top 50 brands in the country across sectors and the 37th position among the top 50 brands in the country across sectors as per Interbrand rankings. Additionally, there was a 79 per cent increase in the bank’s brand valuation over the previous year as per Brand Finance Banking 500 - the world’s most valuable Banking Brands Report published by Brand Finance. The bank’s global ranking improved from 351st to 255th while its India ranking moved up two notches from 11th to 9th. As per the latest Brand Trust Report 2015, the bank’s Brand Trust ranking improved considerably over the years, from 159th in 2013 and 85th in 2014 to 64th in 2015.

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