UPSC Prelims Practice Questions — Frequently Asked Questions (FAQs) on Strategic Restructuring of IDBI Bank Ltd.

Q1. With reference to the budgetary treatment of proceeds from the sale of shares in IDBI Bank Ltd. by the Government of India and the Life Insurance Corporation of India (LIC), consider the following statements: Which of the statements given above are correct?

  1. The Government of India's share of the sale proceeds is a non-debt capital receipt, and it lowers the fiscal deficit in the year it is received.
  2. Because these proceeds are capital receipts, they also lower the revenue deficit for that year.
  3. The amount LIC receives for its share of the stake is counted as a disinvestment receipt in the Union Budget.
  4. Unlike tax revenue, these receipts are non-recurring, because once the asset is sold the Government no longer holds it.
  • A. 2, 3 and 4 only
  • B. 1 and 4 only
  • C. 1 and 2 only
  • D. 1, 3 and 4 only

Q2. Consider the following statements: Which of the following is correct in respect of the above statements?

  1. The sale of shares in IDBI Bank Ltd. by the Government of India and LIC cannot be called a strategic disinvestment, because the two sellers together keep more than a third of the bank's equity.
  2. What makes a disinvestment strategic is that management control passes to the buyer, not that the seller gives up its entire shareholding.
  • A. Both Statement-I and Statement-II are correct and Statement-II explains Statement-I
  • B. Both Statement-I and Statement-II are correct, but Statement-II does not explain Statement-I
  • C. Statement-I is correct, but Statement-II is incorrect
  • D. Statement-I is incorrect, but Statement-II is correct

Q3. Consider the following statements: Which of the following is correct in respect of the above statements?

  1. In 2019 the Reserve Bank of India categorised IDBI Bank Ltd. as a private sector bank, even though its majority shareholder, LIC, was itself owned by the Government.
  2. The RBI treats a bank as a public sector bank only if the bank was constituted by a statute, not if it was incorporated as a company under the Companies Act.
  • A. Both Statement-I and Statement-II are correct and Statement-II explains Statement-I
  • B. Both Statement-I and Statement-II are correct, but Statement-II does not explain Statement-I
  • C. Statement-I is correct, but Statement-II is incorrect
  • D. Statement-I is incorrect, but Statement-II is correct

Q4. Consider the following facts about IDBI Bank Ltd.: In January 2019, after LIC acquired 51% of the bank's equity, the RBI categorised it as a private sector bank. In May 2021, when the CCEA gave in-principle approval for strategic disinvestment, the Government of India held 45.48% and LIC held 49.24%. LIC was the promoter with management control and the Government was the co-promoter. Which of the following inferences can validly be drawn from the above?

  1. The change in regulatory category did not by itself move the bank out of the control of state-owned entities.
  2. Since the bank was already a private sector bank, the Government's sale of its own shares in it could not be described as disinvestment.
  3. Since LIC's share of the equity was lower in 2021 than in 2019, LIC must have sold some of its shares during that period.
  • A. 1 only
  • B. 1 and 2 only
  • C. 2 and 3 only
  • D. 1 and 3 only

Q5. In the IDBI Bank Ltd. transaction, a strategic buyer acquires 60.72% of the bank. The Government of India (15%) and LIC (19%) withdraw their Board nominees and are reclassified as public shareholders. Before the sale, the two together held about 94.7%. The Government intends to sell its residual stake through the open market. Consider the following possible consequences: Which of the above are likely consequences of these arrangements?

  1. The share of the bank's equity held as public shareholding will be several times larger than before the sale.
  2. Selling the Government's residual stake in one large tranche could lower the price the Government realises.
  3. Once the Government has no nominees on the Board, it cannot sell its residual stake without the strategic buyer's consent.
  • A. 1, 2 and 3
  • B. 1 only
  • C. 2 and 3 only
  • D. 1 and 2 only

Q6. With reference to development financial institutions (DFIs) and commercial banks in India, consider the following statements: Which of the statements given above are correct?

  1. Like IDBI Bank Ltd., NaBFID was created by converting an existing DFI into a company formed under the Companies Act.
  2. NaBFID is regulated and supervised by the RBI as an All India Financial Institution.
  3. DFIs specialise in long-tenor project and infrastructure finance, which banks funded mainly by short-term deposits find hard to provide without an asset-liability mismatch.
  • A. 1 and 2 only
  • B. 1, 2 and 3
  • C. 2 and 3 only
  • D. 1 and 3 only