According to media reports, IDBI Bank officers and employees unions have voiced their concerns at the Centre’s proposed stake sale in LIC. When we look into the details we can understand that IDBI Bank Ltd is already a private bank, though the government is holding substantial stake in the bank.
Currently, the Union government and Life Insurance Corporation of India have 45.48 per cent and 49.24 per cent shareholding, respectively, in IDBI Bank, and the LIC of India is the promoter of the bank with management control.
IDBI Bank has inherited a rich legacy from its predecessor entity — Industrial Development Bank of India — which was an apex Development Financial Institution (DFI) from July 1, 1964 to September 30, 2004. The bank claims that as a DFI, the erstwhile IDBI stretched its canvas beyond mere project financing to cover an array of services that contributed towards balanced geographical spread of industries, development of identified backward areas, emergence of a new spirit of enterprise and evolution of a deep and vibrant capital market.
On October 1, 2004, the erstwhile IDBI was converted into a banking company — IDBI Ltd. — to undertake the entire gamut of banking activities while continuing to play its DFI role. IDBI Ltd. merged its subsidiaries — the erstwhile IDBI Bank, IDBI Home Finance Ltd., IDBI Gilts, and the erstwhile United Western Bank Ltd., with itself over a period of time. IDBI Ltd. also changed its name to IDBI Bank Ltd. to reflect its widened business functions.
On December 31, 2003, the Ministry of Law and Justice notified in the gazette the Industrial Development Bank (Transfer of undertaking and repeal) Act 2003, No.3 of 2003 and the Act describes it as an Act to provide for the transfer and vesting of the undertaking of the Industrial Development Bank of India to, and in, the company to be formed and registered as a company under the Companies Act 1956, to carry on banking business and for matters connected therewith or incidental thereto and also to repeal the Industrial Development Bank Act 1964. Hence right from April 1, 2004, the organisation is a company with limited liability (in other words a private organisation).
When the name has been changed from Industrial Development Bank of India to IDBI Bank Limited, a fresh Certificate of Incorporation was also issued on May 17, 2008. This also confirms that the present IDBI Bank is a limited liability company registered under Companies Act.
Just because the government is having shares in this company, it does not automatically become a government company. When we compare other government banks like State Bank of India, Indian Bank, etc. we can notice that these banks are not registered under Companies Act and they have been taken over by the Government of India under Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970, and the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980.
In fact as the government is considering bringing public sector banks (PSBs) under the Companies Act to enable the privatisation of two state-owned banks, as announced in the Budget, the Finance Ministry is holding discussions to bring legislative amendments, and is considering bringing the two public sector banks out of the purview of Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970, and the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980.
One may even recall that immediately after nationalisation of banks in 1969, those banks removed the words ‘The’ and ‘Limited’ from their name boards. They had also altered their stationery items accordingly.
The idea behind removal of the word ‘Limited’ is that these banks are no more limited liability companies and their liability has become unlimited, as the government has become the owner. But as IDBI Bank Limited’s name suggests, it is a limited liability private company, where the government wants to sell its shares. This is not privatisation as it is made out to be.
The writer is a retired banker