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Report: Indian government to proceed with IDBI Bank stake sale

The Indian government is moving ahead with to pare its stake in and is expected to transferthe bank's pool of nonperforming assets to a fund in preparation for the stake sale,India's The Economic Times reported May2, citing "top-ranking sources."

The government will likely sell up to 10% of IDBI Bank to strategicinvestors to reduce its stake to below 50%, the sources said. The government iscommitted to going ahead with the plan in fiscal 2016-2017 despite protests fromthe bank's employees. India's Finance Ministry is expected to seek clarity on thecapital infusion plans of prospective investors, they added.

The government is also planning to transfer a large portion ofthe bank's NPAs, estimated at 200 billion rupees as of Dec. 31, 2015, to a new stressedasset fund. Reducing the bank's NPAs will result in a higher valuation, a sourcesaid.

While the government had previously planned to sell up to a 15%stake in IDBI Bank, sources have indicated that the Reserve Bank of India is notopen to allowing private investors to hold that much of a stake in the lender. Onesource said the central bank may permit the sale of a 10% stake. This could proveto be an obstacle as it remains unclear if foreign investors would be interestedin holding a stake of just 10% in the bank.

As of May 3, US$1 was equivalentto 66.53 Indian rupees.