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IDBI announces slew of policy decisions - Views on News from Equitymaster
 
 
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  • Jan 3, 2000

    IDBI announces slew of policy decisions

    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.

     

     

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