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IDBI barred from banking activity till merger

Sidhartha

Financial institution IDBI would not be allowed to undertake banking activities till a merger with a bank is completed even after the repeal of Industrial Development Bank of India Act, which would facilitate its transformation into a universal bank.

Sources said the finance ministry has inserted a provision in the draft Industrial Development Bank (Merger or Amalgamation, Transfer of Undertakings and Repeal) Bill, 2002, slated to be introduced in Parliament in the present session which seeks to limit IDBI's role to that of a public financial institution till merger with a bank.

This is in contrast to the government's strategy to speed up the process of transformation of the institution to foray into universal banking. The government and IDBI have, however, so far failed to identify a bank for merger with the institution as banks are not in favour of the proposal.

According to the transformation roadmap drawn up by the finance ministry in consultation with IDBI and the Reserve Bank of India, the first step would be the repeal of the Act followed by a merger for creation of a new entity under the Companies Act, 1956.

Officials said that according to the draft bill that is at present awaiting a clearance from the law ministry the new entity post merger would be expected to perform the development role that is at present mandated to IDBI. The draft bill also provides that the merged entity need not seek a fresh banking licence from RBI.

The draft bill also stipulates that the merger will not be given effect till the valuation and the swap ratio are approved by the board of directors of IDBI and the bank that would be merged with the institution as also a concurrence from at least three-fourths of the shareholders of the two entities.

The merger would also require a nod from RBI and would be effected through a gazette notification.

The bill also proposes consequential amendments to a number of other statutes including the RBI Act, UTI Act, Sidbi Act, Exim Bank of India Act, State Financial Corporation Act, Banking Regulations Act and the Industrial Disputes Act.

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