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The Indian government is in talks with the market regulator seeking to relax a key public shareholding norm for the potential buyer of IDBI Bank in a bid to attract a larger pool of suitors, according to two sources.

Earlier this month, India invited bids for a 60.72% stake in IDBI Bank –– which is 45.48% owned by the government and 49.24% by state-owned Life Insurance Corp (LIC) –– after dragging its feet for years.

The Securities and Exchange Board of India (SEBI), India's capital markets regulator, mandates a minimum 25% of public shareholding for all listed entities, excluding state-owned companies, within three years of listing.

The government has asked SEBI if it can classify the government and LIC's 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, one of the sources, who did not want to be named, told Reuters.

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

IDBI Bank, being majority owned by the government and a quasi-government firm, is currently exempt from the shareholding norm and 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 said.

India's finance ministry did not reply to request for comments.

SLOW LANE

Prime Minister Narendra Modi has been trying to privatise a number of state-run companies since he came to power in 2014. But he has had only a few successes such as the sale of India's flag carrier Air India to conglomerate Tata group.

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.

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