The government has finalised the sale of its stake in IDBI Bank, along with LIC’s, to Prem Watsa’s Fairfax Financial Holdings (FFH) for about ₹530 billion. The two sellers are divesting roughly 30% each, making this one of the largest disinvestments in recent years.

As with many large disinvestments, the transaction has come under scrutiny. Critics allege that the process was engineered to favour FFH, that the sale price fell below the government’s reserve price, and that a profitable asset should not have been sold. Fiery exchanges between the Finance Minister and the Opposition have only muddied an already complex debate.

IDBI Bank, originally established as a development financial institution, remained largely government-owned until a series of poorly judged loans led to losses in 2018. LIC then took a majority stake, partly through a preferential issue and partly through the open offer it was required to make. The government and LIC ended up with stakes of about 45% and 51%, respectively. The RBI has since reclassified the bank as a private bank.

The strategic sale began in 2025-26, with a reserve price of about ₹94 a share, while the stock was trading above ₹100. Qualified bids were received in January, but both were below the reserve price. FFH’s bid of ₹75 a share meant the sale could not proceed.

The process restarted in 2026-27, with fresh bids invited from the previously qualified bidders. The government also sought a fresh valuation from independent valuers, including alternative methods, and offered tax indemnities to the eventual buyer. It says the bid process and valuations were initiated at the same time and conducted on a double-blind basis: neither bidders nor valuers knew the other’s bids or valuations.

FFH’s winning bid of ₹81 a share was higher than its earlier offer and the fresh independent valuation of about ₹76. Critics allege that the new valuation was brought below the earlier reserve price of ₹94 after bids were opened, to facilitate the sale to FFH. The government denies this, maintaining that the two processes were independent.

Much of the debate has focused on due process. Less attention has been paid to the valuation and incentives that shape transaction pricing.

Price and Value
Price and value are not the same. For a listed security, price is the amount at which a marginal exchange of cash for shares takes place. It can be set by a transaction involving as little as one share. It changes constantly as investors respond to new information about the economy, the business environment, policy, company prospects and competitors. It also moves with a risk appetite. The last traded price is precise, but that does not make it a measure of enduring value.

Value is more durable, though it can be estimated in several ways: intrinsic valuation, relative valuation and real-option valuation.

For a share representing fractional ownership of a going concern, intrinsic value depends on the share of future cash flows the business can generate for shareholders. For a company being liquidated, it reflects the cash that can be realised from selling assets after settling claims.

Relative valuation compares a business with similar companies and adjusts for differences between them. Real-option valuation is often used for innovative ventures with uncertain prospects and little or no near-term cash flow.

Value is not a single point estimate. It is better understood as a range. Since markets are not always efficient, a share’s price can diverge significantly from that range.

Bridging the Gap
Every transaction requires a price. The valuation method used to arrive at it depends partly on the parties’ incentives.

A strategic buyer is acquiring a business, not simply a minority shareholding. For such a buyer, the business’s value, together with a margin of safety, matters more than the price of an individual share. A committed seller such as the government may use the market price as a starting point, particularly when it exceeds intrinsic value, but ultimately may settle within a range of estimated value. Negotiation is what bridges the gap between the starting positions and the final transaction price. Without it, many deals would never happen.

It is always possible to find a number among the various prices and valuation estimates to cast doubt on a transaction’s fairness. The IDBI Bank sale appears to be a case of bridging just such a gap.

In the first round, FFH likely valued IDBI Bank at around its ₹75-a-share bid. As an investor in several Indian financial businesses, including Catholic Syrian Bank, IIFL and GoDigit, FFH is familiar with the valuation process. The government’s valuers, meanwhile, may have relied more heavily on the market price, which was around ₹100. At the time, the Bank Nifty was near 60,000, amid optimism over trade deals and the industry’s prospects. The gap between price and value was simply too wide for a deal to proceed.

The Iran war in March 2026 and its economic fallout then weighed on markets. Rupee depreciation, higher oil prices, foreign investor outflows, global interest-rate increases and a collapse in sentiment pushed the Bank Nifty down to about 53,000. IDBI Bank’s share price fell roughly 30% from the earlier reserve price.

FFH’s valuation, based on long-term business prospects rather than short-term market movements, may have changed little. The new tax indemnities offered by the government may also have enabled FFH to raise its bid towards the higher end of its valuation range. The resulting ₹81-a-share offer was also likely intended to help the transaction conclude.

In a private-sector deal, bridging the price-value gap can be relatively quick. Here, the process took the more tortuous route of fresh bids, new valuations, alternative methods and public justifications. Allegations that procedural rules were bent to support the negotiation are serious, but flexibility in negotiating a transaction is not, in itself, evidence of impropriety.

Against this background, the main questions about the transaction can be assessed.

Was the Sale Below Market Price?
No. The ₹81-a-share offer was above the market price of about ₹70 when bids were received, near the height of pessimism over the Iran war. The shares now trade at about ₹80.

Was the Sale Below Fair Value?
That is harder to establish, given the range of valuation methods. For banks, however, book value per share (BVPS) provides a useful anchor. Although book value is often less meaningful for asset-heavy businesses, it can help assess a bank’s value when a multiple is applied to it.

IDBI Bank’s BVPS is about ₹67. A price of ₹81 therefore implies a multiple of roughly 1.2 times book value.

Critics argue that this is low for a bank classified as private, since private banks often command multiples closer to 1.8 times book value, compared with around 1 or less for public-sector banks. IDBI Bank likely sits somewhere between the two. On that basis, the multiple and price do not appear unreasonable.

FFH may be hoping to increase the multiple towards 2 through its post purchase business strategy for the bank. That is a return for taking risk, not something it should be begrudged. The government and LIC also retain stakes in the bank and could benefit from any upside if the sale price understated its value or the bank is re-rated.

Was the Government Pressured into Selling?
In a sense, yes. But that is not unusual for an entity raising cash through asset sales. FFH, too, may need to sell assets to finance the purchase.

Pressures on government finances, many beyond its control, made negotiation necessary. In this case, adjusting to market realities rather than adhering to an unworkable anchor appears pragmatic.

Could FFH’s other Holdings Complicate the Deal?
FFH has expressed interest in merging its other insurance and wealth-management holdings into IDBI Bank. That could make the transaction more complex and less transparent. But if any such transactions take place within extant regulations at arm’s length and at market prices, they need not cast doubt on the sale itself.

Any merger would also require approvals from the relevant regulators, including IRDAI, SEBI and the RBI, and FFH has not made these mergers a requirement for the IDBI Bank purchase.

Should a Profitable Bank have been Sold?
In a market-based economy, the government should ideally intervene where necessary, rather than remain an active participant in business. As India moves towards a more market-oriented economy, the government’s role should progressively reduce.

The opportunity cost of capital also matters. Disinvestment is a legitimate approach to raising money needed for other purposes, given that the business of banking is in general well understood by the private sector.

Finally, if the government sells only loss-making assets, what kind of valuation can it expect? Such sales may be treated as fire sales, based on depreciated asset values rather than the value of a business as a going concern.

In this context, there is little inherently wrong with selling a profitable asset such as IDBI Bank.

The transaction appears broadly sound. More importantly, it suggests a willingness to recognise market realities and adjust policy pragmatically without abandoning fairness.

The larger message is that India needs capital from all sources to sustain growth. A government willing to make pragmatic, fair adjustments to attract that capital is taking a step towards the ease of doing business the country needs.