The government has given an in-principle approval for the strategic disinvestment of IDBI Bank along with transfer of management control, paving the way for both the government and Life Insurance Corporation of India (LIC) to reduce their shareholding in the lender.

The government holds a 45.48 per cent stake in IDBI Bank, while LIC holds 49.24 per cent. LIC is now the promoter of IDBI Bank with management Control and the government is the co-promoter.

However, the quantum of stake dilution of both the government and the insurer will be decided while structuring the deal, in consultation with the RBI, an official statement after the CCEA decision said.

FDI in private banks has a ceiling of 74 per cent of the paid-up capital and 20 per cent FDI is allowed in PSU banks under the government approval route.

The government will organise roadshows in the coming months and decide on the quantum of stake that would be sold to make the lender more lucrative for big domestic and foreign investors ahead of its privatisation.

The decision of the LIC board is also in line with the Insurance Regulatory and Development Authority of India’s mandate to reduce its stake in IDBI Bank to below 15 per cent.

The approval from the cabinet will give the Department of Investment and Public Asset Management (DIPAM) the authority to move ahead with the divestment process, and appoint intermediaries for the sale.

The strategic buyer will have to infuse funds, new technology and implement best management practices for the growth of IDBI Bank.