IDBI plans roadmap for merger with IDBI Bank

IDBI plans roadmap for merger with IDBI Bank
DEV CHATTERJEE

MUMBAI, MAY 1: Term-lending institution Industrial Development Bank of India (IDBI) is considering a merger with IDBI Bank in order to achieve its goal of a universal bank. The institution is set to appoint a consultant to make the roadmap for the eventual merger, top officials said.

``Eventually, we will have to merge IDBI Bank with the parent company as there could be a lot of overlap in operations,'' officials told this newspaper. ``The entire details about the share swap and employee relocation would be taken after consultations with the Reserve Bank of India,'' they added.

``We are meeting all the criteria on the cash reserve ratio (CRR) and we do not foresee any problems,'' officials added. IDBI is looking at the option of providing working capital loans as well as project finance in the next few months to become a universal bank.

On Friday, IDBI's scrip closed at Rs 35.40 while its subsidiary, IDBI Bank closed the day at 30 on the Bombay Stock Exchange.``We've a time-frame of 12 months in mind when the entire deal would be presented to the RBI and the formal merger would take place,'' officials added.

Earlier, IDBI Chairman, G P Gupta said the bank is planning to offer a whole range of services including retail banking and insurance services under one umbrella.

The bank is also considering taking over an existing bank to increase its penetration in the hinterlands. ``We cannot rule out a reverse merger of IDBI with IDBI Bank in order to make use of the IDBI Bank's brand name,'' officials added.

``IDBI is looking at the universal banking concept from quite some time now. We were just waiting for the RBI guidelines. As the RBI has already issued the broad guidelines on term-lending institution turning itself to universal bank... we will expedite the process by appointing a consultant by next month,'' Gupta said.

Last week, IDBI announced its FY 2000 annual results which includes a 20 per cent fall in its net profits. The bank has now targeted to improve margins and cutting costs to boost its profitability in the current fiscal.

In fact, IDBI's plan to transform itself as a universal bank stems from the fact that its arch rival ICICI is also making plans on the similar lines and is considering a merger if ICICI Bank with itself. Both institutions are saying that by the end of next three years -- the deadline set by the RBI -- they would be able to provide all kind of banking services to both retail and business customers.

In its half-yearly credit policy announced last week, the RBI said that the Universal Banking is a desirable goal and some progress has already been made by permitting banks to diversify into investments and long-term financing and the DFIs to lend for working capital.

``However, banks have certain special characteristics and as such any dilution of RBI's prudential and supervisory norms for conduct of banking business would be inadvisable. Further, any conglomerate, in which a bank is present, should be subject to a consolidated approach to supervision and regulation,'' the RBI clarified.