Exemption order under regulation 11 of SEBI (SAST) Regulations, 2011 in the matter of IDBI Bank Limited

WTM/GM/CFD/113/2017–2018 SECURITIES AND EXCHANGE BOARD OF INDIA ORDER UNDER SECTION 11(1) AND SECTION 11(2)(h) OF THE SEBI ACT READ WITH REGULATION 11(5) OF THE SECURITIES AND EXCHANGE BOARD OF INDIA (SUBSTANTIAL ACQUISITION OF SHARES AND TAKEOVERS) REGULATIONS, 2011. IN THE MATTER OF PROPOSED ACQUISITION OF SHARES AND VOTING RIGHTS IN – TARGET COMPANY IDBI BANK LIMITED ACQUIRER GOVERNMENT OF INDIA

BACKGROUND – 1.1 IDBI Bank Limited (“Target Company”) is a Scheduled Commercial Bank having its Registered Office at IDBI Tower, WTC Complex, Cuffe Parade, Mumbai–400005. The Target Company was constituted under the Industrial Development Bank of India Act, 1964 as a Development Financial Institution and came into being as on July 1, 1964. Subsequently, it was transformed into a public sector bank on September 27, 2004. The shares of the Target Company are listed on the BSE Limited (“BSE”) and the National Stock Exchange of India Limited (“NSE”).

1.2 The Target Company filed an application dated January 24, 2018 (“Application”), on behalf of its Promoter i.e. the Government of India (“Proposed Acquirer/GOI”) seeking exemption from the applicability of Regulation 3(2) of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (“Takeover Regulations”).

1.3 Regulation 3(2) of the Takeover Regulations, states – “3. Substantial acquisition of shares or voting rights. (2). No acquirer, who together with persons acting in concert with him, has acquired and holds in accordance with these regulations shares or voting rights in a target company entitling them to exercise twenty-five per cent or more of the voting rights in the target company but less than the maximum permissible non-public shareholding, shall acquire within any financial year additional shares or voting rights in such target company entitling them to exercise more than five per cent of the voting rights, unless the acquirer makes a public announcement of an open offer for acquiring shares of such target company in accordance with these regulations:

Order in the matter of IDBI Bank Limited

Provided that such acquirer shall not be entitled to acquire or enter into any agreement to acquire shares or voting rights exceeding such number of shares as would take the aggregate shareholding pursuant to the acquisition above the maximum permissible non-public shareholding.”

1.4 From the aforesaid Application and the e–mails dated March 6, 2018 and March 21, 2018, as submitted by the Target Company, the following is noted –

A. Vide a letter dated December 28, 2017, GOI proposed an infusion of capital in the Target Company, amounting to ₹2729 Crores through a preferential allotment of equity shares of the Target Company, to the Proposed Acquirer/Promoter.

B. At the Board Meeting of the Target Company held on January 15, 2018, the Board of Directors approved raising of additional equity capital to the extent of ₹2729 Crores by way of issue of equity shares on a preferential basis to the Proposed Acquirer/Promoter i.e. GOI (“Proposed Acquisition”).

C. An Extra–Ordinary General Meeting (“EGM”) of shareholders in the Target Company was held on February 21, 2018, for obtaining the requisite approval/special resolution for the proposed acquisition. The aforesaid approval was obtained on that date.

D. The Target Company has decided to issue 44,13,71,502 equity shares of face value ₹10 each (aggregating ₹2729 Crores) to the Proposed Acquirer/Promoter, at an issue price of ₹61.83 as determined under Regulation 76(1) of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009 (“ICDR Regulations”).

E. During the Financial year 2017–18, the Target Company allotted 24,74,82,510 equity shares to GOI and 5,13,22,131 equity shares to Life Insurance Corporation of India (“LIC”) on a Preferential basis on August 16, 2017.

F. On October 6, 2017, the Target Company further allotted 28,48,61,472 equity shares to GOI on a Preferential basis resulting in increase in shareholding of GOI from 75.10% to 77.79%.

G. Accordingly, the shareholding pattern in the Target Company as on (i) March 31, 2017; (ii) prior to the proposed acquisition i.e. after allotment to GOI and LIC on August 16, 2017 and October 6, 2017 and (iii) subsequent to the proposed acquisition, is provided as under –

TABLE I – SHAREHOLDING IN THE TARGET COMPANY (SOURCE: APPLICATION) CATEGORY AS ON 31.03.2017 PRIOR TO PROPOSED SUBSEQUENT TO PROPOSED ACQUISITION PROPOSED ALLOTMENT ALLOTMENT AS ON 6.10.2017 NO. OF SHARES NO. OF SHARES NO. OF SHARES NO. OF SHARES AND % AND % AND % AND % A. PROMOTER AND 152,31,13,202 *205,54,67,184 44,13,71,502 249,68,38,686 PROMOTER GROUP [73.98%] [77.79%] [6.98%] [80.96%] B. PUBLIC 53,57,01,879 ^58,70,24,010 – 58,70,24,010 SHAREHOLDING [26.02%] [22.21%] [19.04%] C. GRAND TOTAL (A + B) 205,88,15,081 264,24,91,194 – 308,38,62,696 [100%] [100%] [100%] *^On August 16, 2017, the Target Company allotted 24,74,82,510 equity shares to GOI and 5,13,22,131 equity shares to LIC on a Preferential basis on August 16, 2017, resulting in increase in shareholding of GOI from 73.98% to 75.10%. Consequently, the public shareholding in the Target Company decreased from 26.02% to 24.90%. *On October 6, 2017, the Target Company further allotted 28,48,61,472 equity shares to GOI on a Preferential basis resulting in increase in shareholding of GOI from 75.10% to 77.79%. Consequently, the public shareholding in the Target Company decreased from 24.90% to 22.21%.

H. The Board of Directors of the Target Company as provided in the Application, is as under –

TABLE II – BOARD OF DIRECTORS OF THE TARGET COMPANY SR. NAME STATUS NO. 1. MAHESH KUMAR JAIN EXECUTIVE DIRECTOR 2. KRISHNA PRASAD NAIR EXECUTIVE DIRECTOR 3. GURUDEO MADHUKAR YADWADKAR EXECUTIVE DIRECTOR 4. PANKAJ JAIN NOMINEE DIRECTOR 5. PRAVEEN GARG NOMINEE DIRECTOR 6. SETHURAMAN RAVI INDEPENDENT DIRECTOR 7. NINAD BHALCHANDRA KARPE INDEPENDENT DIRECTOR 8. GYAN PRAKASH JOSHI INDEPENDENT DIRECTOR 9. ASHIMA GOYAL INDEPENDENT DIRECTOR 10. BHUWANCHANDRA BALKRISHNA JOSHI ADDITIONAL DIRECTOR (INDEPENDENT CATEGORY)

I. Submissions made by the Target Company on behalf of the Proposed Acquirer/Promoter for exemption from the provisions of Regulation 3(2) of the Takeover Regulations.

From the Application filed on behalf of the Proposed Acquirer/GOI and the e–mails dated March 6, 2018 and March 21, 2018, as submitted by the Target Company, the following is observed – a. “GOI vide their letter F. No. 7/38/2014–BOA dated 28.12.2017 has decided to infuse capital to the tune of ₹2729 Crores as growth capital in the Bank of way of Preferential Allotment of equity shares in favour of GOI. b. The infusion of ₹2729 Crores over the remainder of the Financial Year 2017–18 and further capital infusion in FY 2018–19, is aimed at  Meeting regulatory capital norms, in terms of the minimum Common Equity Tier 1 (CET 1) and Capital Buffer requirements, subject to the Bank’s performance in carrying out the terms of this Undertaking to GOI satisfaction, and  Augmenting growth capital for enhanced credit off – take – i. In FY 2017–18, and ii. In FY 2018–19, assuming such RWA growth as it is decided by the Department of Financial Services after discussion with the Bank, subject to the Bank’s performance in carrying out the terms of this Undertaking to GOI satisfaction. c. The Bank is conducting an Extraordinary General Meeting for seeking approval of the Members for the proposed (Preferential Allotment) of upto 44,13,71,502 equity shares at a price of ₹61.83 per share aggregating ₹2729 Crores by way of Special Resolution. d. Post the Preferential Allotment, GOI’s shareholding (Promoter) will increase from 73.98% (as on April 1, 2017) to 80.96% (as on the date of the acquisition), that is in excess of 5% of the paid up capital of the Bank during the current financial year (2017–18) attracting the provisions of Regulation 3(2) of the Takeover Regulations. e. Thus … the application is being preferred.”

1.5 Vide e-mail dated February 7, 2018, SEBI sought clarification from the Target Company regarding compliance of Public Sector Banks with minimum public shareholding requirements in terms of Securities Contracts (Regulation) Rules, 1957 (“SCR Rules, 1957”).

1.6 In reply to the abovementioned e-mail, GOI, vide a letter dated March 21, 2018, informed as under:

“Department of Financial Services, Ministry of Finance, Govt. of India, being the promoter of the company declares that IDBI Bank Limited will comply with Minimum Public Shareholding (MPS) requirements in terms of Securities Contracts (Third Amendment) Rules, 2017.”

Findings –

2.1 I have considered the Application made by the Target Company on behalf of the Proposed Acquirer/Promoter along with other relevant material available on record. In this regard, I note as under – i. From Table I of page 3, it is observed that as on March 31, 2017, the Proposed Acquirer/Promoter i.e. GOI, held 152,31,13,202 (73.98%) equity shares in the Target Company.

ii. During the Financial Year 2017–18 i.e. on August 16, 2017, the Target Company allotted 24,74,82,510 equity shares to GOI and 5,13,22,131 equity shares to LIC under preferential basis resulting in increase in shareholding of GOI from 73.98% to 75.10%. Consequently, the public shareholding in the Target Company decreased from 26.02% to 24.90%.

iii. The Target Company further allotted 28,48,61,472 equity shares to GOI under Preferential basis on October 6, 2017, resulting in increase in shareholding of GOI from 75.10% to 77.79%. Consequently, the public shareholding in the Target Company decreased from 24.90% to 22.21%.

iv. Subsequent to the proposed acquisition indicated at Table I of page 3 i.e. preferential allotment of 44,13,71,502 equity shares, the Proposed Acquirer/Promoter will hold 249,68,38,686 (80.96%) equity shares in the Target Company. Consequently, the public shareholding in the Target Company will decrease from 22.21% to 19.04%.

v. The resultant change in shareholding on account of the allotment indicated at paragraph (iv) above, will increase the concentration of the Proposed Acquirer/Promoter/ Government shareholding in the Target Company by 6.98% during the Financial Year 2017–18 i.e. more than 5%, thereby attracting the provisions of Regulation 3(2) of the Takeover Regulations.

vi. There will be no change in control of the Target Company pursuant to the proposed acquisition as the change will only be in the quantum of shares held by the Proposed Acquirer/GOI. Further, there will be no change in the number of equity shares held in the Target Company, by the public shareholders, pursuant to the proposed transactions.

2.2 The infusion of additional capital by the Proposed Acquirer/Promoter is stated to enable the Target Company to meet regulatory capital norms and will also provide the Target Company with additional leverage for raising further equity capital at a later date, as and when the need arises. Accordingly, I am of the considered view that exemption as sought for in the Application made by the Target Company, be granted to the Proposed Acquirer/Promoter, subject to the conditions stated herein.

Order –

3.1 I, in exercise of the powers conferred upon me under Section 19 read with Section 11(1) and Section 11(2)(h) of the Securities and Exchange Board of India Act, 1992 (“SEBI Act”) and Regulation 11(5) of the Takeover Regulations, hereby grant exemption to the Proposed Acquirer, viz. GOI, from complying with the requirements of Regulation 3(2) of the Takeover Regulations with respect to the proposed acquisition of 6.98% equity shares in the Target Company viz. IDBI Bank Limited during the Financial Year 2017–18, through the proposed preferential allotment as mentioned in the Application.

3.2 The exemption so granted is subject to the following conditions:

i. The proposed acquisition shall be in accordance with the relevant provisions of the Companies Act, 2013 and any other applicable law. ii. The GOI/Target Company shall ensure compliance with the statements and disclosures made in the Application. iii. The statements/ averments made or facts and figures mentioned in the Application by the Proposed Acquirer/Promoter are true and correct. iv. The public shareholding in the Bank shall be increased to 25% to comply with minimum public shareholding requirements in terms of SCR Rules, 1957, as undertaken.

3.3 The exemption granted above is limited to the requirements of making open offer under the Takeover Regulations and shall not be construed as exemption from the disclosure requirements under Chapter V of the Takeover Regulations; compliance with the SEBI (Prohibition of Insider Trading) Regulations, 2015; Listing Agreement/SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 and the SCR Rules, 1957.

3.4 The Application dated January 24, 2018, filed by Target Company on behalf of the Proposed Acquirer/Promoter, is accordingly disposed of.

3.5 A copy of this Order shall be forwarded to the recognized Stock Exchanges for their information and necessary action.

Place: Mumbai G. MAHALINGAM Date: March 27, 2018 WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA