| True to tradition
New Delhi, Aug. 11: The cabinet today decided that Industrial Development Bank of India (IDBI) will be restructured in a manner that will ensure that it remains a development bank at heart.
The restructuring will, however, allow the merger of IDBI with its subsidiary IDBI Bank and taking up other functions of a bank by the new entity.
“The cabinet today approved amendments in the bill to ensure that the new banking company also continues to be a development bank, which will provide term lending to industry — large, medium and small,” parliamentary affairs minister Sushma Swaraj said.
The amendment follows changes sought by the parliamentary standing committee on finance, which submitted its report in July. Swaraj added the amended bill was likely to be brought before Parliament towards the end of this session.
“As the operations of IDBI had come under strain, the Reserve Bank came out with a policy in April 2001 to transform the development finance institutions by evolving a cautious transition path to become a bank,” she said.
IDBI has lost public funds running over Rs 16,000 crore by investing in ventures and debenture papers which either went bust or turned into bad debts.
Last November, the government had introduced the IDBI Act repeal bill as the current act does not come under the Banking Regulation Act.
However, the bill was referred to the standing committee on finance during the winter session last December when the Opposition demanded a rethink.
The report suggested that the government retains its 51 per cent equity since small and large investors have invested around Rs 10,000 crore in IDBI bonds.
“The government should make suitable provisions to ensure that the new entity continues to be a development bank providing term lending to industry,” it said.
“There is no specific provision in the bill providing for the converted entity to act as a development bank. Rather the reference of development bank is being substituted by IDBI banking company.”
The bill also makes special exemption with regard to priority sector loans, cash reserve ratio (CRR) and statutory liquidity ratio (SLR) — parameters a scheduled commercial bank firmly follows according to the RBI guidelines.
“The government should also grant IDBI tax exemptions for five years and voluntary retirement schemes for its employees,” the report said.
The bill is likely to have a smooth sailing in this session of Parliament as most of the Opposition members had consented to the restructured package.
Hailing the cabinet’s decision to amend the IDBI repeal bill, IDBI chairman P. P. Vora said IDBI’s conversion into a bank will help in bringing down the costs of deposits and diversify into banking areas, which were hitherto not possible.
“We will be able to bring down cost of deposits (after converting itself into a bank) since IDBI will be having a retail deposit base,” Vora said, adding that it would help its over 3,000 corporate clients.
He, however, said it would in no way affect its project financing and term lending, but would concentrate more on the other banking business operations including treasury business and retail segments.