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Parent to tighten grip on IDBI Bank

Mumbai, May 12: The board of IDBI Bank will meet next week to consider a rights issue to its existing shareholders in a move that kills speculation about the possible entry of a strategic partner.

In a notice to Bombay Stock Exchange, the bank said its directors would meet on May 19 to consider issuing shares on a rights basis.

IDBI owns 57 per cent of the equity while Sidbi controls 14 per cent. The planned private placement of shares will tighten the financial institution’s grip further.

“I am in New York on a holiday,” bank managing director and CEO Gunit Chadha told The Telegraph. He has been one of the loudest voices calling for a strategic partner and a cut in IDBI’s stake.

The fledgling bank is needed to facilitate the transformation of IDBI into the kind of universal bank envisaged in a blueprint drawn by the institution. “It is similar to what happened between ICICI and ICICI Bank, when the parent opted for a reverse merger,” analysts tracking the industry said.

The issue of independence has been at the heart of disagreements between senior officials of IDBI Bank and IDBI in recent months. Chadha has been unsuccessfully trying to lure Bank Muscat and recently J P Morgan into buying a large slice of the bank’s equity through a private placement. Venture capital funds like Chrysalis Capital, WI Carr and New Bridge Capital, besides other overseas investors, were also in talks to pick up 26 per cent in the bank.

However, parent IDBI was not willing to give a guarantee to prospective investors on signing a no-merger pact. This caused a lot of resentment in the bank, and there have been rumours that a miffed Chadha would not seek an extension when his term ends in August. He took over the reins on August 22, 2000, after a 16-year stint with Citicorp in New York and India

A wave of changes swept the bank and brought it closer to parent IDBI once Maya Shankar Verma signed off as the chairman after four years, on March 11.

The government had referred the IDBI (Transfer of Undertaking and Repeal) Bill, 2002 — which seeks to corporatise the financial institution and transform it into a bank — to the committee in December 2002. Even if a reverse merger goes through, the government will hold over 51 per cent in the bank.

What emboldened advocates of unification was that lawmakers supported the proposal to merge IDBI with IDBI Bank. Some members of the Standing Committee of Parliament studying the proposal have come out in favour of the reverse merger.

Sources close to the institution say it will have a merged balance sheet by 2004. The bank born out of the merger will focus on corporate banking, while playing its role of a development financial institution.

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