With Canadian billionaire Prem Watsa’s Fairfax Financial Holdings set to acquire a nearly 61 per cent stake in IDBI Bank for ₹52,878 crore ($5.6 billion), the group faces a choice between merging the lender with CSB Bank, in which it already holds a 40 per cent stake, and exiting the smaller bank.
The government has set a two-year deadline for Fairfax to either merge the two lenders or divest its stake in CSB Bank.
While a merger could offer synergies, integrating the two banks could be complex as they use different technology platforms. IDBI Bank uses Infosys Finacle, while CSB Bank operates on Oracle FLEXCUBE. Although the systems share some similarities, integrating in data structures, products and applications will have some cost.
The government will sell a 30.48 per cent stake in IDBI Bank, while Life Insurance Corporation of India (LIC) will divest 30.24 per cent, leaving them with residual stakes of 15 per cent and 19 per cent, respectively.
A merger could nevertheless offer business synergies, given CSB Bank’s focus on retail banking and IDBI Bank’s presence across both retail and corporate lending, experts said.
According to Dinesh Kumar Khara, former State Bank of India chairman, the conclusion of IDBI Bank’s long-pending divestment process removes a key overhang. Having cleaned up its balance sheet, IDBI Bank is geared up for growth, with fresh capital to expand lending to small and medium enterprises (SMEs) and mid-sized corporates, a segment that could offer better margins.
The new ownership structure could also strengthen governance, with the incoming shareholder taking control while the government and LIC retain board representation, Khara said. The deal also underscores foreign investors’ confidence in India’s financial sector, he added.
The restructuring will attract foreign banking expertise, including from G7 countries, help further modernise banking services, strengthen competition, generate employment and bring long-term foreign investment into India, according to experts.
Fairfax already has interests across banking, non-banking financial companies (NBFCs), capital markets and insurance. Through FIH Mauritius Investments, it held a 40 per cent stake in CSB Bank and a 26.8 per cent stake in IIFL Capital Services as of June 2026. Its stakes in 5paisa Capital and IIFL Finance stood at 24.5 per cent and 13.6 per cent, respectively, as of September 2026.
Fairfax has also been reported to be exploring a sale of its entire stake in IIFL Finance, with the Canadian investor said to be in talks with global private equity players.
The other option for Fairfax is to exit CSB Bank.
“Fairfax is more likely to exit CSB Bank than merge it with IDBI Bank, as IDBI presents a significantly larger opportunity for the group to expand its financial services presence in India,” said Vivek Iyer, partner and financial services risk leader at Grant Thornton Bharat. Fairfax has been looking to build a much larger financial services franchise in India, and IDBI Bank’s scale makes it a strategically important opportunity, Iyer said.
“While CSB Bank has delivered good returns and still offers significant upside, it is a relatively regional bank, and the synergies from combining it with IDBI may be limited, apart from a potential opportunity in the NRI business,” he said.
As of June 30, 2026, IDBI Bank had a balance sheet size of ₹4.44 trillion, net advances of ₹2.58 trillion and deposits of ₹3.25 trillion. Its net worth stood at ₹59,024 crore. Retail lending accounted for 70 per cent of its gross advances, while corporate lending made up the remaining 30 per cent.
In comparison, CSB Bank had a balance sheet size of ₹58,101 crore, gross advances of ₹40,867 crore and deposits of ₹45,515 crore. IDBI Bank had more than 2,000 branches, compared with 868 for CSB Bank.
Iyer also flagged labour and integration challenges at IDBI Bank as potential hurdles to a merger.
“IDBI already faces labour union and industrial relations challenges, and merging CSB into the bank would add significant integration complexities. Therefore, retaining CSB as an independent investment and eventually monetising the stake appears to be the more pragmatic option,” he said.
The proposed IDBI acquisition could also prompt Fairfax to reassess its broader financial services exposure in India, including its investments in IIFL and IIFL Finance, particularly in light of potential regulatory considerations, Iyer said.
