Nilesh Shah on PSU privatisation: How Hindustan Zinc offers a lesson for IDBI Bank

Strategic divestment is the sale of a substantial government stake together with management control to a private buyer. It changes who makes operating decisions and is intended to improve long-term performance. A small stake sale usually raises money but leaves control with the government.

Hindustan Zinc illustrates the distinction. The government sold about 45% of the company to the Vedanta Group and transferred management control. It retained roughly 29%. The article links the transaction with higher capacity, more production, exports, jobs, taxes and royalties.

A small government share sale would not necessarily change management or accountability. Strategic divestment can therefore reshape the company’s direction, while still allowing the government to benefit from a retained stake. The article presents this structure as “strategic sale + minority holding” and connects it with long-term value creation. IDBI Bank’s approved strategic sale is described as a possible future example.

The transaction involved more than a financial stake sale. The government transferred about 45% of Hindustan Zinc, a loss-making public-sector company at the time, to the Vedanta Group. The deal also included management control.

The government retained a minority holding of around 29%. That retained stake remained an important financial interest rather than being sold completely. According to Nilesh Shah, dividends from it alone later exceeded the original sale proceeds.

The article reports that the residual holding is now worth more than Rs 62,000 crore. It also connects the transaction with major operational growth at Hindustan Zinc. The company’s capacity multiplied, production rose more than fourfold, and silver production increased 15-fold. Thus, the government sold control but preserved an ownership stake that continued to participate in the company’s later value creation.

The reported financial outcome is striking because the government benefited in two ways. It received approximately Rs 769 crore when it sold about 45% of Hindustan Zinc. It also kept around 29% ownership, preserving exposure to the company’s future performance.

Nilesh Shah said dividends from that residual holding alone have exceeded the original sale proceeds. The article further states that the remaining stake is now worth more than Rs 62,000 crore. On the reported figures, that current stake value alone is more than 80 times Rs 769 crore.

This comparison does not provide an exact combined return, because the article does not state the total dividends or their timing. It does show the scale of the reported outcome: the government received the original sale payment, collected dividends, and still holds an asset valued above Rs 62,000 crore. Shah uses this as evidence supporting strategic divestment.

The sale was followed by broad operational expansion at Hindustan Zinc. Shah said the company’s capacity multiplied and that it became the world’s largest integrated zinc producer. The changes extended beyond production to trade, employment and government revenue.

Zinc production increased more than fourfold, while silver production rose 15-fold. The company replaced zinc imports and earned foreign exchange through exports. It also created thousands of jobs and paid thousands of crores of rupees in taxes and royalties.

The article additionally reports a substantial improvement in productivity. These outcomes are presented as national benefits linked to the company’s post-transaction growth. They show why Shah argues that strategic divestment can create value beyond the initial sale price. The source does not provide exact capacity figures, job totals, export earnings or tax amounts, so the available evidence is directional rather than a complete numerical account.

A management change can affect performance because the controlling owner can set strategy, allocate capital and hold managers accountable for results. Private management may also face stronger pressure to improve productivity and profitability. These are general reasons why transferring control can matter.

In Hindustan Zinc’s case, the government sold about 45% to the Vedanta Group while transferring management control. The company was loss-making at the time. Afterward, Shah reported multiplied capacity, production growth of more than four times, a 15-fold rise in silver output and substantially improved productivity.

The article presents these developments as evidence supporting strategic divestment, but it does not identify each management decision behind them or prove direct causation. It also highlights wider results, including replaced zinc imports, export foreign exchange, thousands of jobs, and taxes and royalties. The reported experience is therefore an example, not a detailed explanation of every performance driver.

In the 1990s, Shah described IDBI as a premier development financial institution that was larger than ICICI. Their later paths diverged after ownership structures differed. ICICI moved into private ownership, while IDBI remained in the public sector.

According to Shah, ICICI is now valued at Rs 9.88 lakh crore. IDBI remained publicly owned, required repeated capital infusions, and is valued at Rs 90,000 crore. The figures represent a very large difference in reported valuation.

The comparison is used to support the case for strategic divestment, not to provide a full analysis of either institution. The article does not give the dates, valuation methods or detailed reasons for the difference. It says the strategic sale of IDBI Bank has been approved and expresses hope that IDBI could become as successful an example as Hindustan Zinc. Shah also states that his post was not a stock recommendation.

A strategic sale could change the government’s role from controlling owner to minority shareholder or another position set by the transaction. New private management could gain greater responsibility for strategy, operations and performance. The government could still retain an interest if the structure includes a minority holding.

The article contrasts IDBI with ICICI. It says IDBI stayed public, needed repeated capital infusions and is valued at Rs 90,000 crore, while ICICI moved into private ownership and is valued at Rs 9.88 lakh crore. This comparison frames strategic sale as a possible way to reduce reliance on public money.

The strategic sale of IDBI Bank has been approved, but the article gives no final ownership percentage, buyer details or promised operating changes. Therefore, its precise effects remain unspecified in the source. Shah hopes the transaction becomes another successful example like Hindustan Zinc and wishes IDBI Bank well.