IDBI, Bank swap at 1:1.42

The govt will hold a 51.4% stake in the merged entity.

The board of directors of Industrial Development Bank of India (IDBI) announced a swap ratio of 1:1.42 for the merger of IDBI Bank with itself.

This means investors will get one IDBI share for every 1.42 shares of IDBI Bank. The government of India will hold a 51.4 per cent stake in the merged entity.

"The detailed scheme of amalgamation will be submitted to the Reserve Bank of India (RBI) shortly and the merger process will be completed by March 31, 2005," IDBI Chairman M Damodaran said. The appointed date for the merger has been fixed as October 1, 2004.

IDBI will retain a 2.5 per cent stake in a trust for future realisation of shareholder value and extinguish the remaining part of its holding in IDBI Bank. Ahead of the merger, IDBI held a 55.33 per cent stake in IDBI Bank.

IDBI has convened an extraordinary general meeting on February 23 to seek the approval of its shareholders, an IDBI release said. The scheme is subject to approval by the majority of shareholders in number and representing two-thirds in value of the shareholders of both IDBI and IDBI Bank.

Post-merger, there will be two strategic business units, focussing on development finance and commercial banking.

"Considering our existing business model, we have requested the RBI to consider development financing as a part of priority sector lending. The merged entity will have no problem in maintaining the RBI stipulated capital adequacy ratio," said Damodaran.

The institution's exposure to equity is in excess of the RBI stipulated 5 per cent limit. It has sought the RBI's permission for exemption from this norm for the time being. The entity already enjoys a five-year holiday in building up its statutory liquidity ratio portfolio.

The IDBI stock today closed 4.5 per cent higher at Rs 118.40 on the Bombay Stock Exchange (BSE). On the National Stock Exchange, it went up 4.18 per cent to close at Rs 118.35. The IDBI Bank scrip closed at Rs 73.20 on BSE, up 2.59 per cent and at Rs 72 on NSE, a gain of 1.19 per cent.