[sbinews] Govt Plans Merger of IDBI Bank with PSBank

  • From: sbistcbangalore@xxxxxxxx
  • To: sbinews@xxxxxxxxxxxxx
  • Date: Sat, 13 Dec 2003 06:55:52 +0500

Govt plans IDBI merger with PSU bank now

MUMBAI: The government is considering a proposal to merge Industrial 
Development Bank of India with a public sector bank. 

However, it has not ruled on its merger with its subsidiary, IDBI Bank. 

Finance ministry secretary (financial sector) NS Sisodia indicated this to 
newspersons on Friday, on the sidelines of the Bank Economists conference. 
While Mr Sisodia did not the name the bank, there are reports of a possible 
merger of IDBI with either Punjab National Bank or Canara Bank. 

Mr Sisodia also indicated that in the event of such a merger, there was a 
possibility that the merged entity may not require relaxations in the cash 
reserve and statutory liquidity ratios. Last week, the Lok Sabha passed the 
Industrial Development Bank of India (Transfer of Undertaking and Repeal) Bill. 

The passage of the bill was a pre-requisite for the conversion of IDBI into a 
commercial bank. The three options for transfer of IDBI’s business into a 
banking entity were to create a new entity with a fresh banking licence, merge 
IDBI with a public sector bank and merge IDBI with IDBI Bank. 

On the issue of whether the government would permit UTI (I) to respond to the 
open offer made for shares of UTI Bank by HSBC, Mr Sisodia said he was not 
aware if UTI (I) needed to obtain government permission for sale of shares, but 
if such permission was required, UTI would make the necessary application to 
the government and the government would respond to it. UTI (I), which has taken 
over the assets and liabilities relating to the guaranteed return schemes of 
the erstwhile UTI, is controlled by a special administrator governed directly 
by the finance ministry. 

Earlier, delivering his valedictory address at the conference, Mr Sisodia 
admonished banks for not bringing down net interest margins. “The net interest 
margin of 2.8% is higher than even the real rate of interest in most countries 
with whom we compete. We may need to conduct research on the factors which 
account for such a high cost of intermediation and what the best means of 
reducing these costs are,” he said. 

He added that high margins were only part of the problem; another issue was the 
considerable deviation between interest rates charged between various segments. 
“An argument may be given that high price of credit for the SME sector reflects 
higher risk premium and transaction costs. But risk is also high in the 
securities trade, where notwithstanding the regulation, banks would like to 
lend,” said Mr Sisodia. He added that transaction costs for vehicle loans were 
not low, but banks were not averse to lending. 

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