The Telegraph
Since 1st March, 1999
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Chances of IDBI reverse merger with bank dim

New Delhi, Oct. 23: The Industrial Development Bank of India is likely to sell off its stake in IDBI Bank in favour of a private player, including foreign investors or existing nationalised banks once it acquires a banking licence.

IDBI officials explained that the FI’s reverse merger with IDBI Bank, in which it has a 57 per cent stake, is unlikely to come through since the present deposit base of IDBI Bank will not boost IDBI’s scheme of things in retail-banking business.

“Since IDBI Bank has a low cost deposit base of only Rs 16,000 crore as against IDBI’s Rs 65,000 crore...selling off the equity and investing the cash for strengthening its own retail banking business makes business-sense,” they said.

Yesterday, at a meeting between finance secretary S Narayan and IDBI officials it was decided that the present IDBI Act (The Government of India under an Act of Parliament, the IDBI Act 1964) will be amended in the coming winter session to enable it to acquire a banking licence. This will help IDBI enter the retail banking segment where the business prospects and margins are a lot better than the present business of term-lending.

Earlier this year, the RBI had instructed IDBI to lower its stake in IDBI Bank to around 49 per cent. Sources said since the financial institution does not want to dilute its stake in favour of foreign equity funds, it has decided to offload the stake in favour of Small Industries Development Bank of India (another co-promoter of IDBI Bank with 14 per cent equity).

“The deal is informally through. IDBI’s desire of not relinquishing control in IDBI Bank made it offload its stake to Sidbi,” sources said.

Bank officials say the lower capital adequacy ratio at 9.04 per cent is restricting the bank’s growth. “Our first preference was for private equity, failing which, we had to opt for domestic equity since other than huge doses of capital, as and when required, it certainly helps in improving your brand image,” he said.

At present, IDBI Bank’s retail operations consists of 247 ATMs and 60 branches (spread across 63 cities). It has over 60 per cent of its network across Tier II cities.

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