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IIBI gets Rs 143-cr prop to hasten merger with IDBI

Calcutta, July 10: After three long years, here’s some relief for Industrial Investment Bank of India (IIBI).

Finance minister P. Chidambaram has announced an interest subsidy of Rs 143 crore in this year’s budget for the Calcutta-based ailing financial institution.

The NDA government did not provide any financial assistance to IIBI for the last three years.

Sources said the funds have been provided to clear up the books before IIBI merges with Industrial Development Bank of India. IDBI has already started the due diligence process.

IIBI chairman . . Singh said, “IDBI has already initiated the due diligence process, which will take a couple of months. This is part of IDBI’s mega restructuring plan. The government’s assistance of Rs 143 crore is based on the claims that we have made to the government.” Singh is also the chairman and managing director of Allahabad Bank.

IDBI has started the due-diligence process after the finance ministry decided to go ahead with the merger.

Singh said, “We are keeping a low profile now. We are only servicing our existing clients. We are not keen to add new clients to our list just now. Something should be done to make the financial institution vibrant.”

After the merger, the new entity would continue developmental financing. It will also carry out commercial banking operations, including raising cheaper deposits. The two FIs are facing the same problem — their cost of borrowing is higher than cost of lending, while their non-performing assets are on the rise.

While the combined assets of IDBI and IIBI are over Rs 70,000 crore, their non-performing assets are close to Rs 20,000 crore. To tackle IDBI’s problem, the government had introduced the Industrial Development Bank (transfer of undertakings and repeal) Bill in the last winter session of Parliament.

On the role of IIBI post merger, Singh said, “It is not yet clear whether it will function as a bank or a financial institution. A decision can only be taken after the due diligence is over.”

FI sources said the merger with IDBI would benefit IIBI as it was neither functioning well as a term lending institution nor was there any plan to convert it into a commercial bank. “The merger should take place immediately,” they added.

IDBI, the largest financial institution in the country, has drawn up a restructuring plan which envisages converting itself into a bank. It is expected that IDBI will start functioning as a bank from October this year.

IDBI is yet to decide whether IDBI Bank will be merged with itself.

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