Canada's Fairfax Financial, a frontrunner to acquire the government's stake in IDBI Bank, is set to be allowed up to two years to consolidate its India bank holdings to smooth the acquisition, two sources familiar with the matter said.

A long-delayed sale of a majority stake in IDBI Bank, held by the federal government and state insurer Life Insurance Corp of India, is in its final stages.

The transaction, valued at more than $5 billion, would be the largest foreign investment in an Indian bank. It is also important for the government at a time when the Middle East war has strained finances and weaker foreign inflows have pressured the rupee.

Under Reserve Bank of India (RBI) rules, an entity cannot own and operate two separate banks. Fairfax owns about 40% of smaller lender CSB Bank.

The Canadian investor is likely to be given up to two years to either sell its stake in CSB Bank or merge it with IDBI Bank, the two sources said.

A third source, a government official, said it would be "speculative" to say that Fairfax will be given two years to consolidate its bank holdings.

Fairfax, the finance ministry and the RBI did not respond to requests for comment.

Last month, India received revised bids from Fairfax and Emirates for the IDBI stake after lowering the reserve price for the sale.

The deal has already been cleared by a panel of senior bureaucrats and is now before a committee of ministers for final approval, the sources said. It would then require regulatory clearances from the RBI and the Securities and Exchange Board of India.

One option to comply with RBI regulations would be to merge CSB Bank with IDBI Bank, the sources said.

However, Fairfax's India entity is also exploring a sale of its entire CSB stake, according to one of the sources.

CSB, based in the southern state of Kerala, has business worth 862.82 billion rupees ($9 billion). Fairfax acquired control of the lender in 2018 when it required fresh capital to overcome financial stress.

IDBI Bank has assets of nearly $42 billion.

Fairfax may favour selling its CSB holding because a merger could involve complications, including labour union-related issues, the source said. CSB is also too small to significantly alter the combined entity's profile, the person added.

The discussions remain at an early stage and a final decision will be taken only after negotiations with the government are completed.

Fairfax has been a major investor in India through Fairfax India Holdings Corporation, which had assets worth $3.8 billion as of June 30, 2026. Its other investments include non-bank lender IIFL Capital and online brokerage firm 5paisa.

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