The Industrial Development Bank of India (IDBI) has announced a slew of policy decisions.
First, it would not extend finance to multinationals (MNCs) seeking to fund mergers and acquisitions of Indian businesses. Second, it plans to convert the amounts under default from companies into equity shares of those companies. Third, it announced a planned tie-up with Principal Financial Group of the USA whose representative is to take charge of the IDBI Mutual Fund. Finally it is implementing an enterprise wide banking software and upgrading its 32 legacy systems to new software.
All these are long over due measures but one does not know whether these envisage a change in the attitude of IDBI cadre. The tie–up with the Principal group is suggestive that the IDBI top brass has realised that the management of mutual funds requires a different mindset altogether. The upgrading of its infotech architecture was anyway the need of the hour as technology has emerged as a driver providing a sustainable competitive advantage to the banking industry. However, the decision not to lend to MNCs, which seek to acquire Indian businesses could lead to a loss of business to rival ICICI. (ICICI has been open to funding deals such as the Lafarge’s acquisition of Tata Steel’s cement unit.)
The intention to convert sticky loans into equity seems to be prompted by the booming stock market. With even cats and dogs likely to shoot up in the forthcoming boom IDBI obviously feels that the sticky assets could be converted into marketable securities. Looks like even IDBI is begun to believe in the greater fool theory.
LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.
SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.
Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India. Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: email@example.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407