Letter by Shri E A S Sarma, Former Secretary to the Government of India to the Union Finance Minister
Shri Sarma draws attention to two serious legal issues about the disinvestment of IDBI Bank and how it will adversely affect the welfare mandate of the Bank. He also points out that the privatisation of the IDBI will amount to the breach of the assurance given to the Parliament. He opines that the balance of advantage lies in favour of dropping the proposal to privatise IDBI. Instead, the government should focus its attention on strengthening IDBI by enabling it to fulfil its role as a development finance institution.
To
Smt. Nirmala Sitharaman
Union Finance Minister
Dear Smt. Sitharaman,
I understand that both the Finance Ministry and the RBI have taken up a review of the progress of disinvestment of IDBI, perhaps with a view to expedite the process.
In the past, I had raised several serious concerns about the pitfalls in the approach adopted by DIPAM in the case of disinvestment of IDBI, in my letter of 8-10-2022 addressed to the DIPAM Secretary. My concerns are yet to be addressed.
I wish to reiterate my concerns as follows:
Legal issues:
On the face of it, there are two serious legal concerns about the disinvestment of IDBI, as follows:
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- IDBI has in its possession several highly valuable land assets across the country. Several of them were acquired in the past under the earlier land acquisition Act of 1894 on the premise that such acquisition was for a “public purpose”, which was defined in Section 3(f)(iv) as for a company wholly owned/ controlled by the government. In other words, if IDBI were to slip into the hands of a private company, all such lands should revert to the government, as otherwise it would imply an outright violation of that statutory provision. The bid documents make no mention of this!
- Section 5(1) of the Industrial Development Bank (Transfer of Undertaking and Repeal) Act, 2003 implicitly provides an assurance that under no circumstances, the service conditions of IDBI’s employees be altered. The terms of disinvestment of IDBI, as spelt out by DIPAM, violate that provision.
IDBI’s welfare mandate:
As of now, the Centre and the LIC hold more than 90% of the equity of IDBI. As such, it is a public sector entity subject to SC/ST/OBC reservations mandated by the Constitution and, also the welfare mandate envisaged in the Directive Principles. As and when 60.72% of its equity is privatised, as is the intention underlying disinvestment, the government will be permanently putting an end to such reservations and shutting doors for the welfare benefits of IDBI, depriving SCs/STs/OBCs of their entitlement to employment opportunities through IDBI, in addition to introducing uncertainty in the future of the existing 9,500 such employees from the disadvantaged sections. Reservations for the disadvantaged primarily result in empowering those communities and it is unfortunate that the government should ignore it and go ahead with privatisation.
It is in that context that the SC/ST/OBC employees of IDBI have rightly demanded that the government should protect their rights (https://www.thehindubusinessline.com/money-and-banking/idbi-bank-sc-st-and-obc-employees-forum-seeks-protection-of-rights-careers/article70521406.ece) The government cannot afford to brush aside their fears.
In addition, one should also remember that IDBI has stood by government’s policy to empower women and provide reservations for differently abled persons. IDBI’s workforce comprises 6,911 women employees and 884 differently abled employees. Privatisation would put an end to this, apart from creating uncertainty in the lives of those existing employees.
IDBI’s role till date is that of a development finance institution with a network of 2,122 branches across the country, providing access to people in many remote areas. IDBI hosts more than 18.72 lakh accounts under the Pradhan Mantri Jan Dhan Yojana (PMJDY); more than 10.86 lakh Bank account holders under Pradhan Mantri Suraksha Bima Yojana (PMSBY); more than 3.81 lakh Bank account holders under Pradhan Mantri Jeevan Bima Yojana (PMJJBY); more than 5.48 lakh Bank account holders under Atal Pension Yojana (APY); maintains 191 Aadhaar Enrolment Centres; one Rural Self Employment Training Institute (IDBI-RSETI) at Satara District which trained 7,165 candidates out of whom 5,241 have got employed. Would not privatisation put an end to all this?
Due to re-classification of IDBI Bank as a “private sector bank” by RBI, Metro and Urban Branches of IDBI Bank have unfortunately stopped providing interest subvention for KCC loans to farmers since March, 2019. If the Bank goes into the hands of private/foreign players, even the semi-urban and rural branches are likely to be stopped from lending to farmers. IDBI may also stop giving small loans viz., MUDRA/PMSVANIDHI/Stand Up India, education loans to students which are normally offered as unsecured loans.
I hope that the government has considered these likely consequences of privatising IDBI. 0
Breach of an assurance given to the Parliament:
In the 13th Lok Sabha, the Parliamentary Standing Committee on Finance dealt in detail with the IDBI (Transfer of Undertaking and Repeal) Bill 2002 and in its 46th Report of June, 2003 at Para 33 had observed as follows:
“The Committee are given to understand that there is huge investment of Rs. 10,000 crores by general public in IDBI which is not secured. They are of the opinion that this dispensation holds good so long as IDBI is a Government owned banking company, but the day the Government holding in converted IDBI comes below 51% there will be chaos – like situation in the country making investors panicky. Hence, they recommend that the Government should make provisions which will ensure that Government’s shareholding in IDBI do not come below 51%”
The then Finance Minister to Lok Sabha on 08.12.2003 and Rajya Sabha on 15.12.2003 gave an assurance that Government shall at all times maintain not less than 51% equity holding in IDBI as a Banking Company. The above assurance was taken on the records of the Government Committee on Assurances.
In other words, the decision taken by the present government to disinvest IDBI constitutes a breach of that Parliamentary assurance.
As on 31-3-2025, public deposits in IDBI stood at Rs.3,10,294/- crores, as against IDBI’s total business of Rs.5,28,714/- crores. Many small investors have invested their hard earned savings in IDBI, assuming that it has the government’s backing. Privatising IDBI would imply letting them down.
No competition for IDBI privatisation:
On the face of it, the IDBI disinvestment exercise has all along been a non-starter. Initially, as per reports, there were three bidders, Fairfax, Kotak and NDB. Kotak has announced its exit from the bidding process (https://www.newindianexpress.com/business/2026/Feb/09/idbi-bank-sale-just-two-foreign-bidders-in-the-fray-as-kotak-quits-the-race)
Fairfax faces a conflict of interest as it has acquired a majority share in the Catholic Syrian Bank (https://www.fairfaxindia.ca/press-releases/fairfax-india-to-acquire-51-of-the-catholic-syrian-bank-ltd-2018-02-20/)
In other words, the only contender for IDBI is the NDB in which the Investment Corporation of Dubai (ICD) and the Dubai Holding Corporate LLC hold equity shares of 40.9% and 14.8% respectively, both of which are controlled by the Government of Dubai.
In other words, if DIPAM finalises IDBI disinvestment on the basis of a single bid by NDB, it will result in a somewhat questionable outcome that IDBI’s majority ownership and control will shift from the hands of government entities in India to government entities in Dubai, suggesting that DIPAM reposes greater trust in the managerial ability of a foreign government than the Government of India! If this is the case, DIPAM will have to answer the Parliament and the public at large.
It may be noted that DIPAM has excluded CPSEs in India from bidding for IDBI but not excluded entities controlled by foreign governments. Such exclusion is not only discriminatory but also, it has resulted in a questionable outcome as above.
Against the above background, I feel that the balance of advantage lies in favour of dropping the proposal to privatise IDBI.
Instead, the government should focus its attention on strengthening IDBI by enabling it to fulfil its role as a development finance institution.
Regards,
Yours sincerely,
E A S Sarma
Former Secretary to the Government of India
Visakhapatnam