The Hindu Business Line : IDBI Bank to merge with IDBI — Trust to take over Rs 9,000-cr NPAs

IN separate meetings held on Thursday, the boards of IDBI and IDBI Bank in principle approved the proposal to merge IDBI Bank with IDBI, thereby enabling the combined entity - the Industrial Development Bank of India - to become a universal bank.

In a separate development, the setting up of a Stressed Assets Stabilisation Fund (SASF) was also approved to enable the purging of IDBI's legacy portfolio of NPAs.

The trust would take over IDBI's NPAs to the extent of Rs 9,000 crore in exchange for Government of India securities.

Speaking to newspersons, the IDBI Chairman and Managing Director, Mr M. Damodaran, made it clear that it was not a reverse merger as was widely presumed.

Following the approvals of Parliament that came into effect from July 2, IDBI would become a deemed banking company under the Banking Regulation Act.

IDBI proposes to commence banking business in accordance with the provisions of the new Act, in addition to the business being transacted under IDBI Act, from an `appointed date' to be notified at a later stage by the Government.

According to Mr Damodaran, the move to commercial banking with its gateway to low-cost retail deposits and consequential ability to on-lend on more competitive terms would help IDBI consolidate its operational performance further.

Stating that the valuation exercise would commence sometime next week for determining the swap ratios for the merger, he said that the entire process of merger would be completed before the current fiscal ends.

As IDBI becomes a deemed banking company from October 1 itself, in accordance with the law passed by Parliament, the merger would take place between two banking companies. Mr Damodaran said that the Rs 9,000-cr assistance would be a cash-neutral one wherein the Government would issue 20-year bonds against which IDBI would transfer Rs 9,000 crore of its stressed assets to the SASF Trust. Admitting that a few NPAs (significantly lower than one per cent) would still be left, Mr Damodaran did not rule out the possibility of IDBI transferring a few more stressed assets in favour of an asset reconstruction company "if an attractive price is offered for such stressed assets". Clarifying that IDBI, in its post-merger avatar, would not vacate the development banking space for aggressive retail banking foray, he said that the bank would adopt a model of strategic business units, wherein different SBUs would focus on development banking, retail banking and others.

Development finance would be treated as priority sector lending, he added.

"Following the merger, IDBI would become a bigger and stronger organisation that would be better equipped to service its customers and raise low-cost funds with a clean balance sheet."

IDBI Bank shares rose the maximum permissible 20 per cent to Rs 50.55 on the BSE, while IDBI's shares closed 5.7 per cent higher at Rs 66.75.

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