IDBI on course to universal banking; weighs reverse merger with IDBI Bank

NEW DELHI, NOV 6: In an effort to move towards universal banking, Industrial Development Bank of India (IDBI) is weighing the option of reverse merger of IDBI with IDBI Bank. The Board of Directors of IDBI is also expected to meet in the middle of November to finalise the consultant who would be drafting IDBI’s course to universal banking.
According to sources in IDBI, the financial institution is likely to follow the same route as ICICI in its course to universal banking. However, in case of ICICI, the FI has decided to take a longer period of 6 to 7 years to switch over to universal banking. In case of IDBI, the period would be much shorter and in the proposal to the RBI, the FI is expected to submit a time frame of maximum 3 years for the switchover, sources added. "The plan is likely to be implemented in phases but in a shorter time frame as compared to ICICI", sources added.

Earlier, the Reserve Bank of India had conveyed to the FIs that they should decided on whether to remain as a financial institution or become an universal bank. While ICICI and IDBI has made up its mind to switch over to universal banking, IFCI has set up an Expert Committee to decide on the issue.µ According to IDBI sources, the FI has already shortlisted three consultants for drafting its course to universal banking and would take a final decision on the appointment of the consultant in its board meeting by the middle of this month. Arther Andersen is among the three consultants shortlisted by the FI. The consultant would be given a time frame of around 3 months to draft the report and after being passed at the Board of Directors of IDBI, it would be placed before the RBI. The entire process is expected to be through by early next calendar year.

Reverse merger of IDBI with IDBI bank is one of the options the FI is looking at in its move towards universal banking. However, for that IDBI Bank needs to gear up to absorb the business of IDBI, sources added. Another issue which needs to be cleared by the institution is the SLR and CRR requirements which would be imposed on the FI once it becomes a universal bank. "We have suggested to the apex bank that the SLR and CRR requirements be imposed on the incremental deposits only", sources in IDBI added.
The process might get delayed by a few months due to change of the Chairman of the institution which is expected in the beginning of the next calender year, sources added. G P Gupta, the CMD of IDBI is scheduled to retire in Jaunary 2001.
As a step toward universal banking, the institutions has also stepped up its efforts in venture capital. According to sources, IDBI is expected to float a ventre capital fund to the tune of Rs 50,000 crore shortly. The venture capital fund would be aimed mostly at the IT sector. A separate asset management company (AMC) would also be set up to manage the venture capital funds and the institution is also planning to bring all its venture capital business under one arm and out of the ambit of the balance sheet of IDBI. At present, all venture capital transactions are done out of the balance sheet of the FI, sources added.