The Hindu : Business : IDBI becomes deemed banking company

Online edition of India's National Newspaper
Saturday, Oct 02, 2004

Business

Business

IDBI becomes deemed banking company

By Our Special Correspondent

MUMBAI, OCT. 1. The Industrial Development Bank of India (IDBI), the erstwhile principal development financial institution with a four decadal multifaceted contribution towards catalysing industrialisation in the country, metamorphosed into a banking company from today.

The new entity, Industrial Development Bank of India Ltd (IDBI Ltd), a company within the meaning of Companies Act, 1949, has been formed in accordance with the provisions of IDBI (Transfer of Undertaking and Repeal) Act 2003 (Repeal Act) passed by Parliament on December 16, 2003.

"As on today we have become a deemed banking company", the Chairman, IDBI Ltd., M. Damodaran, said here today.

"We continue to focus on our core areas" of development banking, he added.

Merger on cards

Although IDBI Ltd. commences its foray into banking on a standalone basis, a merger of IDBI Bank with IDBI Ltd. is expected to be in place before the end of the current financial year.

The new banking entity is to raise Rs. 5,000 crores, including foreign exchange resources of $300 million, in the second half of current fiscal ending March 31, 2005. It would raise Rs. 5,000 crore through instruments such as deposits (savings, current account and bonds in the October 2004-March 2005, IDBI Executive Director, O. V. Bundellu, said. The board of IDBI ratified this at a meeting held today. Mr. Damodaran said that the merger of IDBI Bank with IDBI would be completed this financial year. Pending merger, IDBI Bank will continue its retail banking business. The Government will have a stake of minimum 51 per cent in the merged entity. IDBI Ltd. tand IDBI Bank have appointed two different evaluators to conduct the due diligence of both entities.

Other than the merger of IDBI Bank with IDBI Ltd., it also thinking about possible merger of other banks. Said Mr. Damodaran, "inorganic growth is also possible". Pointing out further, he said, "in the short-term we will be the number two bank in the country and in the medium term we will be closer to number one."

Transfer of NPA

The transformation into bank comes on the heels of the establishment of the Stressed Assets Stabilisation Fund (SASF), domiciled in a Special Purpose Vehicle set up by the Government in the form of an Asset Management Trust, to which stressed assets amounting to Rs. 9,000 crores have been transferred. The Central Government has also accorded SASF the status of a `financial institution', to enable it to access the Debt Recovery Tribunals (DRT) for recovery of debts. IDBI also transferred its Rs. 1,200 crore exposure in the defunct Enron's Dabhol Power Company also to SASF. As on March 31, 2004, its exposure in DPC has been classified as a non-performing asset by IDBI.

The board of IDBI Ltd. cleared a proposal of offering voluntary retirement scheme (VRS) to its employees. A circular in this regard issued today said that the process would be started from November 1.

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