After a long wait, the boards of term-lending institution, Industrial Development Bank of India (IDBI) and IDBI Bank, have cleared a proposal to merge with each other. After merger, the new entity will be the third largest bank in the country in terms of assets. The main objective of the restructuring is to reduce the cost of funds and expand IDBI's net interest margins. This article analyzes the positive and negative aspect of the merging scenario.

"We are now embarking on the journey of merger"said the CMD, IDBI, at a press conference in Hyderabad on July 27, 2004.

The long-awaited consolidation of the Indian banking sector is finally taking off. Barely three days after the proposal to merge Global Trust Bank with Oriental Bank of Commerce was made, has IDBI, the country's largest development financial institution, decided to merge with IDBI Bank, its private banking arm. Soon after approving the merger, Industrial Development Bank of India Chairman, M Damodaran, claimed that the combined entity would reposition itself to become one of the largest banks in the country, comparable only with State Bank of India, benchmarking itself with SBI in terms of size.