The IDBI - IDBI Bank merger has created a bank-IDBI Ltd.- which has assets worth Rs. 80,000 cr. The major benefit to IDBI is that it can access low-cost funds besides the ready-made availability of branch network, technology and ATMs across 72 cities. RBI has relaxed SLR norms for the new bank. The transfer of the Rs. 9,000 cr NPAs of IDBI to a newly created Stressed Assets Stabilization Fund (SASF) has helped the new bank reduce its net NPA ratio to less than 1% and capital adequacy ratio to just over 9%. The new bank has many opportunities in the infrastructure area to increase its asset base in the future.
The Indian banking sector underwent a series of mergers and acquisitions in a need for consolidation of Indian banks to create world-class banks in size and scale. As a response to changes in the operating environment, following the initiation of reforms since the early 1990s the Government of India decided to transform IDBI into a commercial bank without avoiding its developmental finance obligations. IDBI's merger with its private banking arm, IDBI Bank, was one of the biggest mergers in the history of the Indian banking sector. The first such merger took place in March 2002, when ICICI was reverse merged with its banking arm ICICI Bank.
The IDBI - IDBI Bank merger created a bank with assets worth Rs. 8000 cr. The new entity post-merger, renamed IDBI Limited "a company within the meaning of Companies Act, 1956 and a banking company as defined under Banking Regulation Act, 1949, formed in accordance with the provisions of IDBI (Transfer of Undertaking and Repeal) Act 2003 (Repeal Act) passed by Parliament", primarily focused on project finance and retail lending. In the new market dominated economy, IDBI's development banking model had largely become irrelevant. The present focus of the financial sector is primarily on the vast untapped retail segment. IDBI believed that moving on to the new business model of commercial banking, with access to low-cost current and savings bank deposits would help it to diversify its client and asset base. |
