Clean-up of IDBI books facilitated

The Industrial Development Bank of India (IDBI) has got a dream deal with the government deciding to pump in Rs 9,000 crore through the Stretched Assets Stabilisation Fund, and the proposed merger of IDBI Bank into the development finance company.

IDBI's balance sheet will need to be cleaned up prior to the merger and non performing assets will need to be brought down to 1.24 per cent by September this year. The merger comes into effect on October 1.

The clean up exercise has been facilitated with the transfer of Rs 9,000 crore of government bonds as cash-neutral assistance through SASF.

These bonds will have a 20-year tenure, and in exchange, the institution will transfer Rs 9,000 crore of its NPAs into this fund.

IDBI started its clean up exercise in preparation for conversion into a bank. It had accelerated the NPA provisioning in the last quarter of March 2002. IDBI chairman M Damodaran said yesterday that prior to September 30, if ARCIL is ready to buy some of IDBI's non-performing assets at the present value, and not at a discount, "we are ready to sell".

Further, IDBI has already put its infotech arm, IDBI Intech on the block and had also decided to exit from 18 state finance corporations, where it has a 20-30 per cent shareholding. It is necessary for IDBI to exit from un-related businesses as per the norms laid down by the Reserve Bank of India.

Through the merger, the institution's cost of funds will fall considerably from the existing 5.6 per cent. This follows its ability to access saving bank accounts, current accounts and call money markets.

At the same time, it is also seen as a win-win situation for IDBI Bank, whose capital adequacy ratio (CAR) today rules just above 9 per cent. This is because the institution's CAR is today 18 per cent.