The Centre on Tuesday clarified that a consortium of foreign funds and investment entities owned by foreign investors can buy a majority stake in IDBI Bank.

The crucial clarification comes around 10 days before IDBI Bank receives expression of interest from potential investors. Some analysts say it will pave the way for the Alternative Investment Funds to bid for a controlling stake in the bank.

The current guidelines of the Reserve Bank of India restrict foreign ownership in new private banks. The central bank’s residency criteria for promoters applies only for newly set up banks and would not apply to an existing entity such as IDBI Bank, the Department of Investment and Public Asset Management (Dipam) said in response to interested bidders’ queries.

“The residency criteria would not apply to a consortium consisting of funds investment vehicle incorporated outside India,” the finance ministry clarification said.

The Indian government and the RBI would also consider relaxing the five-year lock-in period for shares if a non-banking financial company is merged into IDBI Bank.

The ministry also said IDBI Bank would continue its primary dealer business even if a foreign bank acquires majority stake and management control in the private sector bank.

As part of the primary dealer activity, IDBI Bank is involved in market making activities in respect of G-Secs, including T-bills. IDBI’s treasury actively participates in the primary auction of government bonds.

In response to a query on the primary dealership activities undergoing change/ getting impacted, where a foreign bank acquires more than 50 per cent shareholding and management control in the strategic sale, Dipam said: “There may not be any impact on the primary dealer business of the IDBI Bank.”

Primary dealers are RBI-registered entities that buy and sell government bonds. They have the licence to buy government securities (G-secs) directly from the central bank and sell them to other buyers, thereby creating market for G-Secs.