The government’s decision to sell a majority stake in IDBI Bank to Canadian financial services group Fairfax Financial Holdings has come under scrutiny, with questions emerging over the valuation, bidding process and procedural rules governing the transaction.
The controversy intensified after a media report cited minutes of internal government meetings that reportedly indicated changes in the valuation methodology while considering bids below the original reserve price.
The issue has also triggered a political row, with Leader of Opposition Rahul Gandhi questioning the rationale behind privatising a bank that has returned to profitability. He has also raised concerns over employee protections, reservation policies and service conditions.
The Finance Ministry, however, has defended the transaction, maintaining that the process was conducted within the powers delegated to the Core Group of Secretaries on Disinvestment (CGD) and that independent valuation exercises were carried out before the final offer was accepted.
Finance Minister Nirmala Sitharaman also hit back at Gandhi’s allegations, calling them lies and asserting that the IDBI Bank stake sale had followed due process.
Here is a closer look at the deal, the allegations surrounding it and the government’s defence.
WHAT IS THE IDBI BANK SALE DEAL?
On October 14, 2026, the Cabinet Committee on Economic Affairs (CCEA) approved the sale of a 60.72% stake in IDBI Bank to Fairfax Financial Holdings for Rs 52,878 crore.
The transaction involves the sale of 30.48% held by the Government of India and 30.24% owned by the state-run Life Insurance Corporation of India (LIC). Following the transaction, the government will retain a 15% stake, while LIC will continue to hold 19%.
The approved buyer is 10955230 Canada Inc., a subsidiary of Fairfax Financial Holdings, led by Canadian billionaire Prem Watsa.
IDBI Bank had faced severe financial stress and was placed under the Reserve Bank of India’s Prompt Corrective Action (PCA) framework in May 2017 due to mounting non-performing assets and losses. The restrictions were lifted in March 2021 after its financial position improved.
According to the Finance Ministry, Fairfax’s final offer of Rs 81 per share was higher than the revised independent valuation benchmark of Rs 75.99 per share. The transaction remains subject to regulatory clearances, including the RBI’s fit-and-proper assessment of the proposed buyer.
WHY IS THE IDBI BANK SALE FACING CONTROVERSY?
At the heart of the controversy is the process through which the government arrived at the final sale price of Rs 81 per share.
The government had initially set a reserve price of Rs 94.42 per share. However, the first round of bids, opened on March 12, 2026, failed to meet this benchmark, with both bidders submitting offers below the reserve price.
According to a BW Businessworld report published on October 29, which cited internal minutes of the Core Group of Secretaries on Disinvestment dated August 13, Fairfax submitted a revised offer on June 1. The offer was opened on July 13 and reportedly stood at Rs 81 per share.
The report said officials subsequently decided to conduct a fresh valuation exercise, which resulted in a revised benchmark of Rs 75.99 per share. Fairfax’s offer was then accepted, despite being around 19.5% below the original reserve price.
This sequence has raised questions over whether the revised valuation was determined independently, particularly since Fairfax’s revised offer had already been opened before the exercise was completed.
Another contentious issue concerns the selection of comparable banks for the valuation exercise.
According to the internal note cited in the report, listed public sector banks were considered comparable institutions, while private sector banks were excluded.
The decision has attracted attention because the RBI has classified IDBI Bank as a private sector bank for regulatory purposes since 2019, following LIC’s acquisition of a majority stake. The selection of comparable institutions can significantly influence the valuation outcome.
The report also flagged questions concerning the treatment of IDBI Bank’s fluctuating share price and intangible assets, including the methodology used to assess its broader business value.
THE RAILWAY STORES CODE CONTROVERSY
One of the more unusual aspects of the controversy is the reported reference to the Railway Stores Code in the internal government note.
According to the BW Businessworld report, the August 13 CGD minutes acknowledged that the General Financial Rules (GFR) did not contain a specific provision governing the sale of government-owned shares.
The note reportedly referred to provisions dealing with the disposal of goods and the Railway Stores Code, which governs the auction of railway stores and scrap.
The provision cited states: “Bids lower than the reserve prices may, however, be accepted by the Depot Officer where found expedient provided the Depot Officer doing so records his reasons in writing.”
This reference has prompted questions over whether a provision designed for railway auctions could appropriately be applied as a procedural precedent for the strategic sale of a commercial bank.
The Finance Ministry’s October 29 clarification, however, referred to powers delegated to the CGD by the CCEA in August 2017 to resolve procedural difficulties and consider deviations during strategic disinvestment exercises. It did not specifically address the reported reference to the Railway Stores Code.
WHAT IS THE GOVERNMENT’S DEFENCE?
The Finance Ministry issued a detailed clarification on October 29, defending the bidding and valuation process.
Its central argument is that the initial bidding guidelines were indicative internal practices rather than binding statutory rules, and that the CGD had the authority to determine the procedure for the subsequent round.
The ministry said the initial bidding exercise was conducted by the Department of Investment and Public Asset Management (DIPAM) under internal practices that allowed flexibility in complex transactions.
“The first or initial bid round was conducted in the financial year 2025-26 by DIPAM as per its internal practices, which are in the nature of indicative guidelines and not hidebound rules or regulations,” the PIB clarification said.
Rejecting allegations that the original reserve price had been reduced, the ministry maintained that the first bidding round had concluded after the initial offers were not approved and that the subsequent best-offer round was an entirely separate exercise.
“The reserve price was neither decreased, nor increased, and the first round itself became functus officio after the initial bids were not approved,” the clarification stated.
The legal expression ‘functus officio’ means that the first round had completed its operative purpose and no longer had any legal effect.
The government also cited a CCEA decision dated August 16, 2017, which empowered the CGD to take policy decisions on procedural matters and consider deviations wherever necessary for the effective implementation of strategic disinvestment transactions.
The relevant provision allows the CGD “to take policy decisions with regard to procedural issues and to consider deviations as necessary from time to time for (the) effective implementation of decisions of CCEA”.
According to the ministry, the CGD exercised these delegated powers to frame the procedure for the second or best-offer round, as DIPAM did not have a specific internal mechanism for handling bids below the reserve price.
MINISTRY SAYS VALUATION WAS INDEPENDENT
The government has also rejected questions surrounding the revised valuation methodology, insisting that the exercise was independently conducted and followed a double-blind process.
According to the ministry, the CGD reviewed the valuation methodology in April 2026, before inviting the best offers. Independent valuation agencies began their work in May, after the financial accounts for the year ended March 31, 2026, became publicly available towards the end of April.
The ministry said the process was double-blind, meaning bidders were not aware of the valuations and the valuation agencies had no access to the bids.
“The process remained double blind because the bidder did not know the valuation and the valuators did not see the bids,” the ministry said.
Two independent advisers conducted separate exercises using different methodologies.
The business valuation was based on the Market Multiple Method, with listed public sector banks selected as comparators because suitable comparable transactions were not available. The second exercise involved asset valuation using established methodologies.
Defending the exclusion of private sector banks from the comparison, the ministry argued that IDBI Bank continued to be overwhelmingly owned by LIC and the government, even though the RBI classified it as a private bank for regulatory purposes.
WHY DID THE GOVERNMENT AGREE TO A TAX INDEMNITY?
Another issue attracting attention is the tax indemnity extended to Fairfax against certain disputed tax demands.
The Finance Ministry defended the arrangement, describing it as a common demand made by qualified bidders in large transactions and arguing that it helped secure a higher offer.
The ministry estimated the potential liability under the arrangement at Rs 627 crore, while the bid-discovered price increased by Rs 3,917 crore.
“This remains a low probability event and revenue neutral for the government, as only the additional tax demand, if paid at all, will be eligible for reimbursement,” the PIB clarification said.
The government also pointed out that it and LIC would retain residual stakes in IDBI Bank, allowing them to benefit from any future appreciation in the bank’s value following the strategic restructuring.
WHY IS RAHUL GANDHI OPPOSED TO THE IDBI BANK SALE?
The proposed transaction has also triggered a political confrontation, with Congress leader and Leader of Opposition Rahul Gandhi questioning the government’s decision to privatise the bank.
In an open letter to IDBI Bank employees on October 29, Gandhi asked why the government was selling a bank that had returned to profitability.
He recalled meeting bank employees at Parliament House who expressed concern over the proposed sale of an institution they had helped revive.
Gandhi also referred to an assurance given by the government to Parliament in 2003 that it would retain at least 51% ownership in IDBI Bank. While acknowledging that the assurance might not be legally binding, he argued that it represented a commitment made to the people of India.
He further warned that privatisation could affect reservation policies for Scheduled Castes, Scheduled Tribes and Other Backward Classes, apart from raising concerns over employee service conditions, pensions and other benefits.
The Finance Ministry’s October 29 clarification largely focused on defending the bidding and valuation procedures and did not directly address all the employee-related concerns raised by Gandhi.
WHAT DOES THE CONTROVERSY MEAN FOR THE IDBI BANK SALE?
The IDBI Bank transaction has brought two distinct issues into focus: whether the government should privatise a bank that has made a financial recovery, and whether the process used to determine its sale price was sufficiently transparent.
While the Finance Ministry has defended the transaction by citing the CGD’s delegated powers and independent valuation exercises, the reported internal meeting minutes have raised questions over the bidding sequence, the selection of valuation comparators and the reference to the Railway Stores Code.
The controversy is therefore likely to remain centred on the transparency of the disinvestment process and the government’s responsibility to secure fair value for public assets.
However, questions over the valuation methodology and procedural decisions should be distinguished from established wrongdoing. No publicly established finding by a court or investigative agency has so far established fraud or criminal misconduct in the transaction.