Indian-Canadian billionaire Prem Watsa plans to combine IDBI Bank, Digit Insurance and IIFL Capital

Canadian billionaire Prem Watsa plans to combine IDBI Bank, Digit Insurance and IIFL Capital Services under a single financial services group, following India's approval of Fairfax Financial Holdings' acquisition of a controlling stake in the Indian lender for 528.78 billion rupees ($5.56 billion).

The proposed consolidation would bring banking, insurance, investment banking and wealth management under one corporate structure, expanding the range of financial services available through Fairfax's Indian investments.

Fairfax announced the plan on Wednesday, October 14, after the Indian government approved the Canadian investment company's acquisition of a 60.72% stake in IDBI Bank. Watsa, Fairfax's chairman and chief executive, discussed the proposed combination as the company outlined its plans for the lender and its existing financial services investments.

Under the proposed arrangement, Fairfax intends to contribute its 30.2% stake in IIFL Capital Services and its 49% stake in Digit to IDBI Bank. The transactions remain subject to the necessary regulatory approvals.

Digit includes Go Digit General Insurance and Go Digit Life Insurance, while IIFL Capital provides investment banking and wealth management services. Bringing the businesses together would give IDBI Bank a broader role beyond traditional banking.

Fairfax is also seeking to increase its stake in IIFL Capital to 51% through an open offer, according to the company.

The planned restructuring follows one of the largest foreign investment transactions in India's financial sector. The government's approval covers the sale of a combined 60.72% interest in IDBI Bank held by the Indian government and Life Insurance Corporation of India.

The agreed consideration is 528.78 billion rupees, equivalent to approximately $5.56 billion. Fairfax's proposed purchase price is 81 rupees per share.

The acquisition is a significant expansion of Watsa's investments in India, where Fairfax already has interests in financial services and other sectors. The proposed consolidation would allow the group to organise several of those interests around a major banking institution.

However, the transactions are not yet complete. Fairfax's announcement states that the proposed acquisition and the contribution of its existing investments remain conditional on definitive agreements and various regulatory, shareholder, debtholder and other approvals.

The restructuring would also have to address Fairfax's existing ownership of CSB Bank. Indian banking regulations restrict an investor from holding majority stakes in multiple banks, and Fairfax will need to resolve the overlap involving CSB Bank and IDBI Bank within the applicable period.

The proposed combination nevertheless offers Fairfax a route to building a financial services platform with several complementary businesses. A banking operation could provide access to customers and deposits, while insurance and wealth management could broaden the group's revenue sources.

For IDBI Bank, the change would mark another stage in its transition away from government control. The lender has been the subject of a prolonged privatisation process as Indian authorities seek to reduce their holdings in state-linked businesses and attract private investment into the financial sector.

The proposed group would operate in a competitive market where established banks, insurers and investment firms are seeking to expand their customer bases and product offerings. Its ability to integrate the businesses while maintaining their existing operations will be important to the success of the plan.

Fairfax said it does not expect the proposed restructuring to change the governance, management or operating structures of Digit and IIFL Capital.

The plan now depends on the completion of the IDBI Bank acquisition and the approvals required for the additional transactions. If implemented, it would consolidate three major financial services operations within a group controlled by Watsa's Fairfax.