The Cabinet Committee on Economic Affairs has given its formal approval for the strategic disinvestment of IDBI Bank to proceed. Fairfax Financial Holdings, acting as the purchasing party, is set to acquire a 60.72% ownership interest in the bank. Once the transaction closes, a combined 34% stake in the bank will remain held jointly by LIC and the Government of India.
Disinvestment — sometimes referred to as divestment — is the process by which a government, whether at the union or state level, offloads ownership stakes in public sector enterprises or units. Such a divestiture may cover the entirety of a government's holding or only a portion of it.
Three broad categories cover the range of disinvestment options: partial stakes below majority control, transfers that hand over a controlling interest, and full handover of ownership to private hands. Under minority disinvestment, the state offloads a portion of its equity — typically between 10% and 25% — through mechanisms such as initial public offerings or offer-for-sale arrangements, while retaining at least 51% of shares and keeping day-to-day management in its hands. Under majority disinvestment, the state offloads a controlling interest — typically at least 51% of shares — to a private strategic partner, with operational authority passing alongside the ownership stake. Full disinvestment involves either the transfer of the government's entire ownership stake to private buyers or the winding down of an enterprise deemed no longer viable, with remaining assets distributed accordingly.
An Initial Public Offering, or IPO, refers to the first-time sale of shares by a company or government entity — or a combination of both — to the public through a stock exchange listing. When a listed company or the government places additional shares on the market for public subscription, the mechanism used is known as a Further Public Offering, or FPO.
Under the Offer for Sale route, promoters can auction their shareholdings directly through a stock exchange's trading platform — a mechanism the Government has drawn on repeatedly since 2012. Under a Strategic Sale arrangement, the government divests up to 50% of its equity in a public sector enterprise — or a higher proportion if the authorised body so decides — with ownership transfer accompanied by a handover of operational control. Under the Institutional Placement Programme framework, participation in the offering is restricted to Qualified Institutional Buyers, a category of institutional investors formally recognised as having the financial sophistication to assess and commit capital within securities markets.
Under the Exchange Traded Fund structure, state-held shares across a range of public-sector enterprises spanning multiple industries can be offloaded through one consolidated offering, giving the government a channel to convert its equity positions in the constituent companies into proceeds. Surplus reserves held by cash-rich public sector undertakings are also channelled back to the government exchequer through state-directed share repurchase programmes, with accumulated funds flowing out of those companies and into public coffers.
Among the stated aims of disinvestment policy are raising funds to cover public expenditure and welfare commitments, addressing budget shortfalls, channelling resources toward infrastructure and social development, retiring national debt, fostering competition by transferring state-owned enterprises to private hands, reducing government involvement in sectors without strategic importance, lifting operational performance, strengthening corporate governance standards, releasing latent asset value, broadening participation in capital markets, and supporting wider economic reform.
Oversight of public-sector enterprise activity falls to the Department of Investment and Public Asset Management (DIPAM), a unit within the Ministry of Finance, which administers the PSE Policy framework introduced in 2021. Under that framework, public-sector undertakings fall into one of two broad groupings: a Strategic tier — covering atomic energy, space, and defence; transport and telecommunications; power, petroleum, coal, and other minerals; and banking, insurance, and financial services — alongside a Non-Strategic tier, within which central public sector enterprises are earmarked either for transfer to private ownership or, where operations prove unviable, for winding down and dissolution.
A set of government-owned enterprises has been earmarked by NITI Aayog for one of three outcomes — strategic sale to private buyers, consolidation through merger, or outright winding down. Two government bodies — the Core Group of Secretaries on Disinvestment and the Alternative Mechanism, the latter drawn from senior Union Cabinet Ministers — hold responsibility for expedited clearances covering valuation processes, price band determinations, and the structure of bidding procedures.
Under the updated framework, 439 central public sector enterprises — subsidiaries included — fall within its scope. Among the 151 state-owned enterprises slated for disposal or closure, 83 operate as holding companies and 68 function as subsidiaries, all drawn from sectors the government has designated as non-strategic. Under this policy, government-owned banks and state-backed insurance bodies fall within the scope of disinvestment proceedings for the first time.
A scheme called the National Monetisation Pipeline was established under government direction, designed to draw fresh revenue by putting dormant or underused public assets to productive use. A new body called the National Land Monetisation Corporation also received formal establishment approval from the Cabinet.
Among the documented drawbacks of disinvestment, analysts point to public assets being sold below their true worth, the forfeiture of dividend income from state enterprises that turn a profit, instability in employment and the reorganisation of workforces, pushback from political actors and labour bodies, opaque processes governing asset valuation and the awarding of bids, thin appetite from private buyers deterred by heavy debt loads or poor operational performance, the prospect of monopoly power concentrating in private hands, the sidelining of socially mandated obligations such as reservation-based hiring, and the tension between capturing a single upfront payment against preserving the stream of long-term financial returns that public ownership can generate.
Among the proposals put forward in policy discussions are independent and transparent asset valuation, giving priority to national interests in defence, nuclear energy, and vital infrastructure, tightening competition law and oversight mechanisms, safeguarding workers through fair compensation and retraining pathways, directing sale proceeds into productive public investment, and consulting stakeholders before any ownership transfer moves ahead.
