IDBI Bank headquarters in Mumbai in 2023. Fairfax's purchase of a controlling stake in the bank is the largest foreign investment made in India's financial services sector.Niharika Kulkarni/Reuters
Fairfax Financial Holdings Ltd. FFH-T is taking on another bank turnaround by acquiring control of India’s IDBI Bank for US$5.6-billion, the largest foreign investment ever made in the South Asian country’s financial services sector.
Toronto-based Fairfax is buying a 60.72-per-cent stake in IDBI Bank from the government of India, according to a press release on Wednesday from India’s federal Department of Investment and Public Asset Management.
“This transaction represents a once-in-a-lifetime opportunity to purchase a majority interest in a bank in one of the world’s fastest growing economies,” Fairfax chief executive officer Prem Watsa said in a press release.
“We assure the Government of India that we are committed to building the world’s finest financial institution from India,” Mr. Watsa said.
IDBI ranks among the 10 largest banks in India by market capitalization and is in the top 15 by assets. Its retail division, the bank’s dominant business, includes teams dedicated to serving doctors, small-business owners and farmers. IDBI also owns an investment bank that finances infrastructure projects.
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Fairfax plans to expand IDBI by combining the bank with its 49-per-cent stake in Go Digit General Insurance Ltd. and its holding in investment bank and wealth manager IIFL Capital Services Ltd.
Founded in 2017, Bangalore-based Go Digit offers car, motorbike, health, fire and property insurance through an online platform and has roughly 80 million customers. In last year’s annual report, Fairfax valued its holding in the company at US$1.3-billion.
The Indian government and state-owned Life Insurance Corp. of India, known as LIC, took control of Mumbai-based IDBI in 2019 after it ran up significant loan losses. Four years ago, the government launched a process to sell its stake as part of Prime Minister Narendra Modi’s strategy to attract more private capital to the banking sector.
The government of India announced the Fairfax investment as Canada’s federal Minister of International Trade Maninder Sidhu leads a trade mission in the country.
Fairfax has previously made significant profits by taking stakes in troubled banks in Ireland, Greece and India, then fixing their balance sheets and expanding their services in fee-generating sectors such wealth management.
In 2014, Fairfax began investing in Athens-based Eurobank and ultimately committed €1.2-billion ($1.9-billion) to the lender. In its most recent annual report, the asset manager showed it has earned a 15-per-cent annual return on the investment. Fairfax has sold part of its holding and still owns a Eurobank stake worth €4-billion.
In 2011, after the global financial crisis, Fairfax led a consortium that recapitalized the Bank of Ireland. Fairfax tripled its investment when it sold the position in 2017, making a €566-million profit.
As part of the sales process at IDBI, the Indian government obtained valuations on the bank from two independent advisers. The government then used the average of the prices its advisers submitted – 75.99 rupees for each IDBI share – as the benchmark price for potential bidders. Fairfax won the auction with a bid of 81 rupees per share.
Five financial companies initially took part in the IDBI auction, according to the government. Two bidders – which Reuters identified as Fairfax and Dubai’s Emirates NBD – made final offers, the government said.
Last year, Emirates NBD acquired a stake in private lender RBL Bank for US$3-billion as part of Mr. Modi’s campaign to boost domestic lenders’ balance sheets.
New bids from Fairfax and Emirates revive stalled sale of India’s IDBI Bank, sources say
The government of India and LIC are each selling just over 30 per cent of IDBI to Fairfax. After the sale, the government will hold a 15-per-cent interest in the bank and LIC will retain a 19-per-cent stake. Government and LIC directors stepped down from the IDBI board, which makes it easier for both investors to sell their remaining shares.
In 2018, Fairfax bought a stake in CSB Bank Ltd., which is also based in India. Government regulations on the IDBI investment require Fairfax to either merge or exit its 40-per-cent stake in CSB Bank over the next two years.
CSB Bank is a relatively small, regional lender that ranks outside India’s top 20 banks by assets.
Mr. Watsa was born in Hyderabad, India, and earned a degree in chemical engineering before immigrating to Canada in the 1970s. He paid for an MBA at Western University by selling furnaces and air conditioners door-to-door. In 1985, he launched Fairfax by starting an asset manager and acquiring a truck insurance business, then investing with a value-based approach.
Fairfax is now one of Canada’s largest financial services companies, with a US$51.2-billion market capitalization. The company stock price has more than tripled in the past five years, with Fairfax shares up 340 per cent on the Toronto Stock Exchange.