IDBI may get tax sops after conversion

The government is believed to have approved the proposal of granting tax benefits to IDBI in the first five years after its conversion into a bank to ensure that it continues its development financing role.

The government is expected to hold at least 51 per cent stake in the new entity.

Also Read IDBI to be merged into IDBI Bank

Official sources said a voluntary retirement scheme package would also be launched in line with the recommendations of the Parliamentary Standing Committee on Finance.

The Union Cabinet on Monday approved the changes in the Industrial Bank (Transfer of Undertakings and Repeal) Bill to ensure that IDBI continues its development financing role even after its conversion into a bank.

"The Cabinet on Monday approved amendments to incorporate provisions in the Bill to ensure that the new banking company also continues to be a development bank, which will provide term lending to industry -- large, medium and small," the Parliamentary Affairs Minister Sushma Swaraj told reporters.

The amendment follows the suggestion of the Parliamentary Standing Committee on Finance, which submitted its report in July end, she said, adding the Finance Minister Jaswant Singh wanted the Bill to be brought in the current session of Parliament.

"As the operations of IDBI had come under strain, the Reserve Bank of India came out with a policy in April 2001 to transform the development financing institute by evolving a cautious transition path to become a bank," she said.

Accordingly, the Industrial Development Bank of India (Transfer of Undertakings and Repeal) Bill was introduced in the winter session of Parliament in 2002, to repeal the IDBI Act of 1964, she added.

The Bill to repeal IDBI Act was referred to the Standing Committee, which suggested that IDBI should retain its DFI role even after the conversion.

"The Bill along with the amendments would facilitate IDBI's transformation into a bank," Swaraj said, but declined to give details.

But sources said the Centre has approved the proposals of the house panel that suggested that government should retain 51 per cent stake in IDBI.

The finance ministry is also expected to grant income tax and capital gains tax exemptions and come up with a VRS package.

Monday's Cabinet decision follows the Standing Committee's reservation on the future role of IDBI.

The panel headed by Janardhana Reddy had questioned the future role of IDBI and said suitable provisions should be incorporated in the Bill to ensure that the new banking company also continues to be a development bank.

Taking into consideration the present financial health of IDBI and the challenges lying ahead, the panel insisted that the management of the new entity should be in efficient hands, which could ensure greater operational transparency and accountability.

Moreover, the panel said grant of RBI's forbearance in the form of exemption from meeting SLR and CRR for five years would not be sufficient for ensuring the survival of IDBI.

In the sixth year, the statutory requirements would mount to a whopping Rs 25,000 crore (Rs 250 billion) and such a huge amount may not be attainable by a new bank in just five years, the panel pointed out.