RBI set to present view on IDBI conversion into bank on Monday

The standing committee is also set to meet IDBI’s former chairman and managing director S.H. Khan next week to take his views on the proposed conversion. A committee headed by Khan had recommended that development financial institutions (DFIs) should be allowed to become banks at the earliest, taking a cue from the suggestion of Narasimham Committee-II, which had suggested that DFIs should ultimately convert themselves either into commercial banks or non-bank finance companies.

The subject of conversion of IDBI into a universal bank was referred to the standing committee when the bill for repealing the IDBI Act was tabled in Parliament on the suggestion of the members.

The committee, headed by Congress MP N. Janardhana Reddy, is supposed to submit its observations before the budget session of Parliament. Some MPs have opposed the move by extending the argument that DFIs, such as IDBI, are needed in a country like India for promoting entrepreneurship.

However, RBI has laid down guidelines for DFIs interested in converting themselves into universal banks as far back as in April 2001, leading the transformation of another DFI, ICICI Ltd, into a universal bank through a reverse merger with its own banking subsidiary, ICICI Bank.

The guidelines enjoined upon interested DFIs to follow all the norms applicable to commercial banks under the Banking Regulation Act.

IDBI’s management, which has been arguing that the model of DFIs, has become outdated and is not sustainable in a competitive commercial banking environment due to higher costs, made its presentation a couple of weeks ago.