IDBI found itself in favour on reports that a parliamentary committee will meet the RBI governor to consider converting the financial institution into a universal bank.
The reports prompted a 2.99% (to Rs 20.50) rise in the scrip of the leading term lending financial institution by 10:20 IST. At that point, Industrial Development Bank of India had registered volumes of 14,075 shares on BSE .
A parliamentary standing committee is meeting RBI governor Bimal Jalan on Monday to arrive at a final decision of converting IDBI into a bank. According to reports, efforts were being made to ensure that a bill to the effect of conversion of IDBI is passed before the Union Budget is proposed.
The IDBI Bill was referred to the standing committee in the winter session of the Lok Sabha when the Opposition called for a re-look at the Bill. Finance minister Jaswant Singh said then that a methodology for corporatisation would be finalised in consultation with the RBI. Even though there were 91 votes in favour of the bill, versus 84 against , it was referred to the standing committee with the agreement that it would be taken up by the House on the opening day of the next session.
Recently, there have been reports that top executives of major Indian banks had agreed to help in the transformation of term lender IDBI into an universal bank.
IDBI's borrowings, as of now, total Rs 10,000 crore (Rs 100 billion). IDBI, reportedly, has already started scouting for a partner in its bid to transform into an universal bank. The transformation, it is held, will prove advantageous to the bank on the grounds that it will be able to tap low cost funds like a normal bank does. IDBI will also be spared from the rigours of priority sector lending and SLR requirements for existing liabilities. However, IDBI would have to meet SLR requirements on incremental liabilities.
Earlier there were reports that the finance ministry has prepared a financial restructuring package to help bail out cash-strapped IDBI from their current woes. The package offers separate treatment for Statutory Liquidity Ratio and non-SLR liabilities.
SLR liabilities are bond offerings that qualify for investment by banks to meet the statutory liquidity norm, regarding a minimum proportion being invested in a specified class of assets.
In the case of IDBI, the SLR liabilities will be renewed at 8%. The government will pay the difference between the renewal rate and the coupon (as promised by these institutions) by issuing revenue-neutral bonds. While in case of IDBI's, non-SLR liabilities, it will be rolled over for 10 years at 6%.
In addition to this, the ministry of finance has also asked all banks and financial institutions to roll over the preference shareholding at 0.1% interest as well as to restructure all short-loans at market rates.
However, if the proposed restructuring plans manifest, banks and financial institutions with stakes in the institutions are likely to be hurt. Profits of these entities are likely to be eroded for several years to come, starting 2002-03.
IDBI has been considerably vindicated by the passing of the Securitisation Bill in Parliament. The bill allows for the recovery of assets from the defaulting borrowers without having to go to court for the purpose.
For Q3 ended 31 December 2002, IDBI registered a huge 14.3% rise in net profit to Rs 40 crore compared to Rs 35 crore in the corresponding period last year. However the total income dropped by 5.5% to Rs 1,824 crore (Rs 18.24 billion) from Rs 1,930 crore (Rs 19.3 billion) in DQ 2001.
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