Financial Daily from THE HINDU group of publications
Monday, Sep 13, 2004
Money & Banking - Mergers & Acquisitions
As DFI status cannot be altered IDBI may not get go-ahead for PSU bank acquisition
Sarbajeet K. Sen
New Delhi , Sept. 12
DREAMING of acquiring another public sector bank might be the latest pastime among the top echelons of Government-owned banks, but for Industrial Development Bank of India (IDBI) harbouring such an idea could well turn out to be a pipedream.
According to senior officials of the Finance Ministry, IDBI might not be allowed to take over another bank since it could alter the unique character that it is committed to maintain.
"IDBI is unlikely to be allowed to take over another public sector bank. The mandate of IDBI is to retain its development financial institution (DFI) characteristic as its core activity. The DFI character might alter if it takes over another commercial bank," a senior official told Business Line.
IDBI has been recently converted into a commercial bank with the Government having committed itself to retaining the institution's public sector character.
After the recent decision of IDBI and its subsidiary, IDBI Bank, to merge into one entity, there had been speculation that a public sector bank might be the next target for the erstwhile apex DFI. The rumours gathered steam after the Chairman of IDBI, Mr M. Damodaran, had said that he planned to position the new bank as a challenger to the country's leading PSU bank, State Bank of India. He had even termed the merger of IDBI Bank as an `appetiser' for IDBI.
Finance Ministry officials felt that it would be better for IDBI to concentrate on getting a firm footing in the banking industry before it plans out further acquisitions. "IDBI has got what it wanted. It has been converted into a bank and had taken over IDBI Bank," the official said.
Talk about mergers and acquisitions within strong public sector banks is the flavour of the season with the Finance Minister, Mr P. Chidambaram, himself on a couple of occasions strongly backing such merger moves. The official line, however, has been that the decisions would be left entirely up to the boards of the banks with the Government merely playing a supportive role in the exercise.
The Narasimham Committee on banking sector reforms had suggested the need for consolidation among the public sector banking industry to trim the overall number of such entities.
The committee had said that the 27-odd banks should be merged in such a manner that the number is reduced to about a dozen.
Among them two or three large banks should be ones with international presence, the remaining 8-10 limiting themselves to the national platform with extensive reach across the country.
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