The Indian authorities could allow IDBI Bank to merge with private banks as they seek to privatise the lender.

The conditions for the sale of IDBI Bank could pave way for its merger with other financial entities, a report by Indian news outlet Business Standard said.

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The report comes after Fairfax India Holdings, the investment arm led by Canadian billionaire Prem Watsa, showed interest to purchase the Government of India’s 45.48% stake in the bank.

The remaining 49.24% stake in the bank is held by the Life Insurance Corporation of India (LIC).

The government is yet to provide information on eligibility conditions for the sale of IDBI Bank.

According to the report, banks may be allowed to place bids, which will be subject to a merger plan approved by the country’s central bank.

IDBI Bank’s merger could be allowed after the Indian government and LIC sell their stake in the lender, the report said.

Notably, the Reserve Bank of India (RBI) does not allow one promoter to own two banks, therefore, bank promotor entities or promoters looking to buy a stake in the lender may have to place their bids after the merger plan has been approved, an official told the publication.

The report highlighted that due to the complexities related to a secondary sale and valuations, a merger with an entity as an initial step or as a means of divestment is an unlikely option.

Such an arrangement would require the government to sell its stake in the merged entity, it added.

Banks and non-banking financial companies are viewed as the most suitable for the sale of IDBI Bank, the publication noted.

“In the case of NBFCs looking to participate in the process and subsequently merge with the lender, there could be a requirement for creating a non-operative financial holding company (NOFHC) according to the extant guidelines of the RBI,” the publication said adding that “for private equity and other investors, bidding through a consortium may be allowed subject to meeting the eligibility criteria.”