In order to make the IDBI Bank purchase attractive, the Indian government is in talks with market regulator Sebi to relax the public shareholding norm for the potential buyer.

As per Sebi regulation, all listed entities need to have a minimum 25% of public shareholding within three years of listing. This prescription excludes state-owned companies.

The government has asked Sebi if it can classify the government and Life Insurance Corp’s (LIC) remaining stake of about 34% after the sale as public float, which will help the new buyer meet the minimum public shareholding norm without diluting its ownership, Reuters reported quoting a source.

Earlier this month, the government invited bids for a 60.72% stake in IDBI Bank. The government owns 45.48% of IDBI Bank while 49.24% is held by state-owned LIC.

"If SEBI allows both government and LIC to be classified as public shareholders, the minimum public shareholding criteria will be automatically met," Reuters quoted another official as saying.

Being majority owned by the government and a quasi-government firm, IDBI Bank is currently exempt from the shareholding norm. The promoters - LIC and government - hold 95% of the firm.

Once approved by SEBI, the relaxed norm will be shared with buyer when the government signs the share purchase agreement with the winning bidder of IDBI Bank, one of the officials told Reuters.

The government had first announced a plan to sell IDBI Bank in 2016 but eventually shuffled the stake to its own insurance behemoth LIC.

A successful majority stake sale of IDBI Bank to a private entity would mark the first such deal in the Indian banking space through a competitive bidding process, setting the stage for more such sales in the coming years, Reuters reported.

In February, the government had announced an intent to privatise two other state-owned lenders but the process is yet to begin.