New company to take over IDBI assets, liabilities

Sidhartha

Finance Minister Yashwant Sinha is expected to announce the roadmap for the transformation of the Industrial Development Bank of India nto a universal bank, in his Budget speech next week.

According to the roadmap, the government will set up a new entity under the Companies Act, 1956. The IDBI Act will be repealed, followed by the transfer of the financial institution's assets and liabilities to the new company.

Subsequently, a "robust" public sector bank will be merged with the new entity. A Cabinet note and a Bill to repeal the Act for Cabinet clearance are under preparation.

Earlier, the government was toying with three options.

It was planning a notification to enable IDBI transform into a bank. But the proposal was turned down by the Reserve Bank of India which said the institution had been set up as a statutory corporation and banking activity was not permissible under the IDBI Act, sources said.

The other option was to repeal the IDBI Act and directly transfer the institution's assets and liabilities to a bank to be merged with IDBI.

The third option was to repeal the IDBI Act and transfer and vest its assets and liabilities with a bank, and then set up a new company.

However, these options were dropped because they were thought to be time-consuming. They might also result in the disruption of the institution's business, it was believed.

The Bill is expected to be tabled in Parliament in the Budget session. In case it fails, the government is contemplating an Ordinance. The Bill will then be tabled in the monsoon session.

Sources said the board of the new entity, with which IDBI would merge, would be granted the powers to scout for a bank. IDBI is contemplating a reverse merger with an unlisted bank and has shortlisted four PSBs (public sector banks).

They also said the new organisation would be entitled to tax concessions available to IDBI. Employees of IDBI and those of the bank would be given the option of continuing in the new organisation, on the existing terms and conditions, or take a VRS (voluntary retirement schemes).

According to Companies Act, the merger must be cleared by the boards of the new entity and the bank. The proposals would also need clearance from the shareholders of the two organisations, and the RBI.

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