The Hindu Business Line : Uncertain on IDBI

TWO PUBLIC SECTOR banks are being run by committees of general managers; the Reserve Bank of India is one Deputy Governor short; IFCI has been merged with Punjab National Bank, a listed entity, with none aware of the terms and conditions, and now there is uncertainty about IDBI, with the Finance Ministry unclear about its financial character. A Finance Ministry more insensitive to the health of its important constituents, all of which it owns, may be difficult to recall. The plea of general elections ahead does not wash as the Finance Ministry can, if it wants, set matters right on its own.

Presenting the Interim Budget, the Finance Minister had committed the Government "to preserving and strengthening the IDBI's role as a development financial institution." Curiously, Parliament, passing the IDBI (Transfer of Undertaking and Repeal) Bill, 2002, allowed for a new banking company under the Banking Regulation Act, 1949 with no licence required from the RBI. The new company is exempt from the Statutory Liquidity Ratio for five years — a needless dilution of regulatory rigour. Today, IDBI, a listed company with majority government stake, is not sure whether it will be a bank or a DFI. As of March 31, 2003, loans and advances to industrial consumers formed 69 per cent of its assets portfolio with 18.3 per cent going to iron and steel, 12. 6 per cent to power, and 24.1 per cent to other industries. Does this diversified portfolio not suggest that IDBI is both a bank and a DFI? Banks have been placing three-year deposits in long-term infrastructure bonds and are aware of the asset-liability mismatch; this is got over by rolling over the deposits. The RBI has allowed issue of long bonds by banks to help fund infrastructure apart from allowing them also to sell such portfolios. There are enough financial instruments to prevent a stall in funding and this should hold for IDBI. The critical problem for any DFI, including IDFC, Nabard and SIDBI, is laying hands on cheap funds which only banks can. Not forever can these DFIs live on public doles doubling as deposits; that about decides their longevity, whether the Finance Ministry and the RBI like it or not. Also, why insist on IDBI being a DFI after setting up various funds such as the one for infrastructure?

The IDBI management has sent its staff for training at the SBI Training College in Hyderabad as a prelude to convert its local offices into bank branches and start banking operations a year from now. Some of the trained hands could train at IDBI Bank, in which IDBI holds majority stake, and it would then make sense to reverse-merge IDBI into IDBI Bank, a la ICICI. The professionally-run IDBI Bank may not like the idea of IDBI being merged with SBI — a prospect the latter is not averse to. But these decisions have to be made by professionals and not by boards packed with government appointees. With government holding majority stake, IDBI has never been as lucky as ICICI, which could plough its own furrow without political interference. Before making up its mind, (should New Delhi at all take a decision?), the Finance Ministry must accept the fact of there being sizable public stakes in IDBI and IDBI Bank.

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