Proposed divestment in IDBI Bank is prima facie illegal, violates an assurance given by the government to Parliament, and does great injustice to employees, especially those belonging to SC/ST/OBC categories, says EAS Sarma, former Secretary, Government of India.
Sarma had recently written to the Finance Minister about the ‘ill-conceived’ proposal to finalise disinvestment in the bank in favour of Fairfax of Canada.
SC/ST/OBC concernsAs of now, the Centre and the LIC hold more than 90 per cent of the equity in IDBI Bank.
Privatisation would put an end to this, apart from creating uncertainty in the lives of those existing employees, Sarma pointed out.
Instead, the government should focus its attention on strengthening IDBI Bank by enabling it to fulfil its role as a development finance institution, he added.
Proposed divestment in IDBI Bank is prima facie illegal, violates an assurance given by the government to Parliament, and does great injustice to employees, especially those belonging to SC/ST/OBC categories, says EAS Sarma, former Secretary, Government of India.
It is inappropriate for the government to transfer a majority equity in the bank in favour of Fairfax of Canada as it is a non-competitive offer, not reflective of the true value of IDBI Bank’ assets and highly skilled workforce, he told businessline in an exclusive chat.
Welfare mandate
“For all practical purposes, the bank is a public sector institution, committed to serve as an instrument in the hands of the government to fulfil welfare mandate under the Directive Principles of the Constitution. I hope that good sense will prevail on the Finance Ministry, and the government will drop the proposal once for all,” Sarma added.
Sarma had recently written to the Finance Minister about the ‘ill-conceived’ proposal to finalise disinvestment in the bank in favour of Fairfax of Canada. He recalled a previous letter dated February 25, in which he had raised concerns about the proposal, which, in his view, “is prima facieinvalid and has far reaching social costs.”
Legal problems
Sarma reiterated that, on the face of it, there are two serious legal concerns about the disinvestment. One, the bank has in its possession several highly valuable land assets across the country. Several of them were acquired in the past under the earlier land acquisition Act of 1894 on the premise that such acquisition was for a “public purpose”.
If IDBI were to slip into the hands of a private company, all such lands should revert to the government, as otherwise it would imply an outright violation of that statutory provision. The bid documents make no mention of this, Sarma had pointed out.
Service conditions
Two, Section 5(1) of the Industrial Development Bank (Transfer of Undertaking and Repeal) Act, 2003 implicitly provides an assurance that under no circumstances can service conditions of employees be altered. Terms of disinvestment, as spelt out by DIPAM (Department of Investment and Public Asset Management), violate that provision.
SC/ST/OBC concerns
As of now, the Centre and the LIC hold more than 90 per cent of the equity in IDBI Bank. As such, it is a public sector entity subject to SC/ST/OBC reservations mandated by the Constitution and, also the welfare mandate envisaged in the Directive Principles.
Reservations for the disadvantaged primarily result in empowering those communities and it is unfortunate that the government should ignore it and go ahead with privatisation.
Sarma quoted a businessline report to reiterate SC/ST/OBC employees have rightly demanded the government protect their rights. The latter cannot afford to brush aside their fears.
Interest subvention
The workforce also comprises 6,911 women employees and 884 differently abled employees. Privatisation would put an end to this, apart from creating uncertainty in the lives of those existing employees, Sarma pointed out.
Due to re-classification of the bank as a “private sector bank” by RBI, metro and urban branches have unfortunately stopped providing interest subvention for KCC loans to farmers since March, 2019.
If it goes into the hands of private/foreign players, even the semi-urban and rural branches are likely to be stopped from lending to farmers.
Breach of assurance
The then Finance Minister to Lok Sabha had, on December 8 and Rajya Sabha on December 15, 2003, given an assurance that Government shall at all times maintain not less than 51 per cent equity holding in IDBI Bank as a Banking Company. The above assurance was taken on the records of the Government Committee on Assurances.
The decision taken by the present government to disinvest constitutes a a breach of that Parliamentary assurance.
According to IDBI’s disclosure of July 14, 2026 to NSE, neither the bank nor its shareholders are aware of DIPAM’s proposal. Should not the small shareholders of IDBI have been taken into confidence, Sarma wondered.
Lack of competition
On the face of it, the disinvestment exercise has all along been a non-starter. Fairfax faces a conflict of interest as it has acquired a majority share in the Catholic Syrian Bank. In other words, the only contender for IDBI is Fairfax which already controls one bank in India.
It has been the well established policy of RBI, the banking regulator, not to permit the same promoter to control two banks at time. If DIPAM considers disinvesting IDBI in favour of Fairfax, the deal will stand ab initio invalid as it involves a clear conflict of interest.
Balance of advantage
The DIPAM has excluded Central PSEs from bidding, but not excluded entities controlled by foreign governments. Such exclusion is not only discriminatory but has also resulted in a questionable outcome as above, Sarma had pointed out.
Against the above background, the balance of advantage lies in favour of dropping the proposal to privatise IDBI. Instead, the government should focus its attention on strengthening IDBI Bank by enabling it to fulfil its role as a development finance institution, he added.
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Published on July 20, 2026
