Financial Daily from THE HINDU group of publications
Monday, Sep 08, 2003
Financial Daily from THE HINDU group of publications Monday, Sep 08, 2003 |
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Financial Institutions Money & Banking - Financial Institutions Development financing role even after conversion into bank — Govt, not RBI, to license IDBI Sarbajeet K. Sen
New Delhi , Sept. 7 THE Reserve Bank of India would be taking a back seat when the Industrial Development Bank of India (IDBI) is welcomed into the world of commercial banking. According to latest plans drawn up by the Ministry of Finance, though IDBI would be corporatised and converted into a bank, the RBI would not be the one that would be granting the banking licence to the new entity. Instead, as a one-of-its-kind hybrid entity - that of a commercial bank with strong development financial institution (DFI) features - IDBI in its new form would be operating under a `banking licence' granted by the Government. "The new bank would be licensed by the Government instead of the RBI," a top Finance Ministry official said. He said that licence would come by way of the wholly new Act - the Industrial Development Bank Act - that would replace the earlier Industrial Development Bank of India Act, 1964. The move is a fallout of the Government's decision to accept the Parliamentary Standing Committee's recommendation that IDBI should continue to do development financing even after it is converted into a bank. The committee had asked the Government 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." "We have accepted that IDBI would retain its development financing role after it is corporatised and given a banking licence," officials said. Officials, however, said that extent of term lending that the new entity would have on its portfolio would be left to its commercial judgement. Though other banks also provide long-term loans, the difference would be on the tenure, with IDBI in its new form being able to lend for a 15-year period, instead of the normal seven-year duration term-finance provided by commercial banks. Though, the RBI would not be granting the banking licence, the new entity would be required to comply with all regulatory requirements applicable to banks, barring those for which regulatory forbearance is explicitly mentioned in the new Act. As part of the regulatory exemption, the new bank would be given a five-year exemption from the 25 per cent statutory liquidity ratio (SLR) requirement. The Government had expected that the parliamentary process to convert IDBI into a bank would be completed in the previous monsoon session itself. However, it fell through despite the Finance Minister, Mr Jaswant Singh, trying his best to convince members that any further delay could lead to irreparable damage to the country's leading DFI which is already under considerable financial stress. Officials, however, firmly ruled out taking the Ordinance route for the purpose. "There are no plans to come up with an ordinance," officials said.
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