The Industrial Development Bank of India (IDBI) is in talks to pick up a stake in the Bank of Baroda (BoB).
Mr. G P Gupta - IDBI's chairman confirmed that talks were on with BoB. In a statement to the Economic Times, he said, 'We have been exploring all possibilities. If necessary, an equity partnership will also be considered'. The chairman of BoB also reiterated the sentiments of Mr. Gupta. Talking to the press, Mr Kannan said, 'We are open to the idea of IDBI picking a stake in the bank. But a fresh issue of equity is not possible. No fresh issue of capital will be made to IDBI. It can pick up the government's 66% stake in the bank. We are ready to grant IDBI a seat on the BoB board also'.
The move is in line with IDBI's strategy to use a bank's network to access low-cost funds. At present IDBI's marginal cost of funds is around 13-13.5% as against 6.5% for BoB. The BoB network spans 2,483 branches and an international presence in 11 countries through 39 overseas branches. In return, IDBI will share its project finance business with BoB.
Industry sources feel that this is the shape of things to come in the financial sector. 'The problem of high cost funds will kill financial institutions unless they become banks. Most of our fresh borrowings are going towards repaying old loans', said an institutional source.
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