IDBI open to buyouts, high on expansion

Industrial Development Bank of India Ltd is open to acquiring a bank to extend its retail network, said deputy managing director O V Bundellu.

However, currently the bank is focusing more on setting up branches and has applied to the Reserve Bank of India for license of 150 branches, Bundellu said.

"We will prefer a bank which is on core banking solution as it will be easier for us to implement core banking then," Bundellu said.

The bank should also provide geographical synergy, he said. All 172 branches of IDBI are under core banking solution, he said.

"We want to be strong on all parameters before we decide on buying a bank," Bundellu said. Finance Minister P Chidambaram urged big public sector banks to initiate consolidation and expected that one or two banks to get merged in the current financial year.

IDBI is registered under The Company's Act 1956 and Banking Regulation Act 1949.

"We have freedom under Company's Act and do not need to go through the parliament route to buy a bank," Bundellu said. IDBI Bank merged with IDBI with effect from October 2004 and the entity was given the status of a banking company.

Historically, IDBI's cost of funds have been higher at 6.83 per cent than an industry average of around 4.5-5.0 per cent. The bank is facing difficulty in garnering more low cost deposits owing to low branch network.

"We aim to bring down the cost of funds to 6 per cent this year (2006-07)," Bundellu said. The bank hopes to get RBI approval for 150 branches by March 2007, which will take its total number of branches to around 330.

The bank aims to have 500 branches by March 2008.

The bank also targets to improve its net interest margin to 1.1-1.2 per cent from 0.49 per cent in current financial year.

"We will try to raise more low cost deposits," Bundellu said. Currently, retail loans form 16% of total loan portfolio.