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Athreya panel suggests restructuring plan for IDBI - Views on News from Equitymaster
 
 
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  • Nov 29, 1999

    Athreya panel suggests restructuring plan for IDBI

    The MB Athreya panel, which was set up to chalk out the vision and strategic direction for the Industrial Development Bank of India (IDBI), has recommended that the financial institution be converted into a bank. This has been reported by a leading national daily.

    IDBI is India's leading development financial institution and the 10th largest development bank in the world. It has also promoted IDBI Bank, IDBI Capital Services, IIMCO (asset management) and SIDBI (funding to small-scale industries).

    The highlights of the recommendations are:

    • Convert IDBI into a bank. To implement this, IDBI should buyout a commercial bank and at the same time merge IDBI Bank, a subsidiary, with itself.
    • The new entity should extend its business reach to Europe, USA, Middle East and East Asia.
    • Lowering the government stake from the present 72%.

    The panel's recommendations seem to favour the approach of another financial institution, ICICI, which has been trying to convert itself into a universal bank. By converting itself into a bank, IDBI will get access to the cheap savings account deposits that give commercial banks much of their competitive advantage in the form of low cost funds. Moreover, the acquired branch network would increase its distribution reach and enable it to cross sell products. The synergies are apparent and it is likely that large cost savings would occur once the merger takes place.

    The recommendation to reduce the government's holding will augur well for the institution, as it would then become more independent in its decision making process. This would go a long way in making the organisation more proactive. Moreover, a lower government stake would also open the possibility of entering into tie-ups with international majors.

    The government is likely to accept the recommendations of the panel. Apart from benefiting the organisations, the government would receive inflows on account of the divestment. This will help alleviate the fiscal deficit concerns.

     

     

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