The Hindu Business Line : IDBI seeks to become stand-alone bank

The merger with a state-owned bank would result in the new entity also being categorised as a public sector undertaking, taking into account the substantial equity holdings of the Government in IDBI and the banks.

NEW DELHI, Oct. 3

SIGNALLING the end of its plans for a merger with an existing bank, Industrial Development Bank of India (IDBI) has submitted a fresh proposal with the Government seeking conversion into a bank in its current stand-alone form.

This would require the repeal of the IDBI Act and providing a special legislative dispensation by which IDBI could be declared as a bank without the need for a merger with an existing state-owned bank or through a reverse merger with its own offspring, IDBI Bank Ltd.

IDBI has made these suggestions straightaway to the Finance Ministry as a follow-up to a presentation made to the Finance Secretary, Dr S. Narayan recently.

The new proposal has been made, as merger with a state-owned bank would result in the new entity also being categorised as a public sector undertaking, taking into account the substantial equity holdings of the Government in IDBI and the state-owned banks.

ICICI, which was the first institution to convert into a bank, had to merge with ICICI Bank, which it had promoted. In that sense, IDBI is seeking a special dispensation in the form of a waiver from the Reserve Bank of India and the Government for conversion into a bank in one stroke through legislative changes, according to senior Government officials.

To facilitate its transition towards a commercial bank, IDBI has also sought a five-year waiver from adhering to the reserve requirements in terms of the statutory liquidity ratio (SLR) and cash reserve ratio (CRR), besides similar relaxation on priority sector lending requirements. IDBI also wants the Government to restructure its liabilities by converting them into special bonds issued by the Government.

Going by internal estimates made by the institution, its aggregate SLR and CRR requirements based on its current deposits would work out close to Rs 20,000 crore. Priority sector lending requirements, on the other hand, are reckoned to be close to Rs 40,000 crore.

RBI has stipulated that 40 per cent of a bank's lending should be directed towards priority sectors. When ICICI converted into a bank, the only concession it got from the banking regulator was in the form of more time for meeting the priority sector lending requirements.

IDBI's assessment is that it can raise between Rs 4,000 crore and Rs 6,000 crore on its own for meeting the reserve requirements. The remaining portion would have to be raised from outside.

The institution has also indicated that it would not prefer to merge with IDBI Bank which it had promoted.

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