The Union Cabinet recently approved the Strategic Disinvestment and transfer of management control in IDBI bank.

What is Strategic Disinvestment?

Strategic disinvestment is the transfer of the ownership and control of a public sector entity to some other entity (mostly to a private sector entity

Background

During the Union Budget 2020-21, the Finance Minister Smt Nirmala Sitharaman announced a target of 2.1 lakh crores of rupees from privatisation and sale of minority stakes in state-owned companies.

What is IDBI Bank?

Industrial Development Bank of India (IDBI Bank Limited or IDBI Bank or IDBI) was established in 1964 by an act to provide credit and other financial facilities for the development of the fledgling Indian industry.

 It is a development finance institution and a subsidiary of Life Insurance Corporation.

Reserve Bank of India clarified, via a press release dated 14 March 2019, that IDBI Bank stands re-categorized as a Private Sector Bank for regulatory purposes with effect from 21 January 2019.

Current Scenario

LIC  is the current promoter of IDBI and GoI is the co-promoter.

What is the plan?

The strategic buyer will infuse funds, best management practices for optimal development, best management practices to generate more businesses without the dependence in Government of India and LIC.

Why is Disinvestment needed?

-There is a pressure to raise sources that will support in economic recovery and will also help meet the expectations in health care.

-It will eliminate the need for the involvement of Government of India in non-strategic areas.

What is the concerned department related with Disinvestment?

-DIPAM is Department of Investment and Pubic Asset Management. It is the nodal department for strategic sale in the Public Sector Undertakings.

- Earlier, the Public Sector Undertakings were identified by NITI Aayog.

-The Department of Disinvestment was renamed as DIPAM (Department of Investment and Public Asset Management) in 2016.

Disinvestment and Strategic Disinvestment

Disinvestment is dilution of Government’s stake in public enterprises. Strategic disinvestment is transferring the end control to some other entity.

What is the concerned fund in which money from Disinvestment is kept?

Government had constituted the National Investment Fund (NIF) in November, 2005 into which the proceeds from disinvestment of Central Public Sector Enterprises were to be channelized

Money from NIF is utilized in which activity?

NIF is professionally managed by selected Public Sector Mutual Funds. 75% of the annual income of the Fund is used to finance selected social sector schemes, which promotes education, health and employment.