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Mumbai , Dec. 12

THE Government is considering merging IDBI with a public sector bank, Mr N.S. Sisodia, Secretary (Financial Sector), Ministry of Finance, said on Friday.

Speaking to newspersons on the sidelines of the Banking Economists' Conference 2003, Mr Sisodia said that every option was being considered with regard to restructuring IDBI through a merger or otherwise.

"It is also possible the IDBI can be merged with any other bank. We are considering several options. Depending on the option we choose, it will be decided whether or not forbearance is required."

The standing committee has recommended that RBI should relax the reserve requirement norms - SLR and CRR - for IDBI for a period of five years which is perceived as the transition time required for the institution to convert into a bank.

In his valedictory address, Mr Sisodia, said that the factors that account for the high cost of intermediation in banks have to be researched.

"The interest margin for scheduled commercial banks normalised by total assets has declined marginally from 3.1 per cent in 1995-96 to 2.8 per cent in 2002-03. This means that the cost of intermediation in the system remains high."

He added: "The interest rate of 2.8 per cent is higher than even the real rate of interest in most countries with whom we compete. We need to find what the best means are to reduce these costs."

Highlighting the challenges facing the banking industry, Mr Sisodia said that infrastructure financing was an area where banks will have to assume a greater role, in the wake of such financing becoming unviable for development financial institutions.

Even in the agriculture sector, penetration continues to be limited, delivery systems poor and credit pricing unfavourable.

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