IDBI Bank

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Industrial De#elopment Bank of India $td.

Type Founded %eadquarters &ey people Industry 'roducts (mployees Website

Public sector bank !"#

$ogesh %garwal & 'hairman( )inance )inancial *ervices +,-www.idbibank.com

The Industrial De#elopment Bank of India $imited commonly known by its acronym IDBI is one of .ndia/s leading public sector banks and #th largest 0ank in overall ratings. 10. categorised .20. as 3other public sector bank3..t was established in !"# by an %ct of Parliament to provide credit and other facilities for the development of the fledgling .ndian industry. .t is currently the tenth largest development bank in the world. *ome of the institutions built by .20. are The 4ational *tock 56change of .ndia 74*58, The 4ational *ecurities 2epository *ervices 9td. 74*298 and the *tock :olding 'orporation of .ndia 7*:'.98 .20. 0%4; , as a private bank after government policy for new generation private banks.

)ontents

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1ecent developments > ?verview of development banking in .ndia @ .ndustrial 2evelopment 0ank of .ndia 7.20.8 # .ndustrial .nvestment 0ank of .ndia 9td. , 56ternal links

*edit+ ,ecent de#elopments

To meet emerging challenges and to keep up with reforms in financial sector, .20. has taken steps to reshape its role from a development finance institution to a commercial institution. Aith the Industrial Development Bank (Transfer of Undertaking and Repeal) !t, >--@, .20. attained the status of a limited company viB. 3.ndustrial 2evelopment 0ank of .ndia 9imited3 7.20.98. *ubseCuently, the 'entral Dovernment notified ?ctober , >--# as the /%ppointed 2ate/ and 10. issued the reCuisite notification on *eptember @-, >--# incorporating .20. 9td. as a /scheduled bank/ under the RBI !t, !@#. 'onseCuently, .20., the erstwhile 2evelopment )inancial .nstitution of the country, formally entered the portals of banking business as .20.9 from ?ctober , >--#, over and above the business currently being transacted. The Private banking arm, id"i "ank was merged into .20.. The .20. 0%4; was one of the fastest growing companies in .ndia. The 0anking arm was technologically driven, customer focussed entity. .20. got the platform of its private banking arm to reform itself into a competitive entity.

*edit+ -#er#iew of de#elopment bankin" in India

The concept of development banking rose only after *econd Aorld Aar, successive of the Dreat 2epression in !@-s. The demand for reconstruction funds for the affected nations compelled in setting up a worldwide institution for reconstructions. %s a result the .012 was set up in !#, as a worldwide institution for development and reconstruction. This concept has been widened all over the world and resulted in setting up of large number of banks around the world which coordinating the developmental activities of different nations with different objectives among the world. The 4arashimam committee had recommended to give up its direct financing functions and to perform only the promotional and refinancing role. :owever it is the *.:.;han committee appointed by 10. has reconted to transform the 2). 7development finance institution8 into universal bankings institutions. The course of development of financial institutions and markets during the post.ndependence period was largely guided by the process of planned development pursued in .ndia with emphasis on mobilisation of savings and channelising investment to meet Plan priorities. %t the time of .ndependence in !#+, .ndia had a fairly well-developed banking system. The adoption of bank dominated financial development strategy was

aimed at meeting the sectoral credit needs, particularly of agriculture and industry. Towards this end, the 1eserve 0ank concentrated on regulating and developing mechanisms for institution building. The commercial banking network was e6panded to cater to the reCuirements of general banking and for meeting the short-term working capital reCuirements of industry and agriculture. *pecialised development financial institutions 72).s8 such as the .20., 4%0%12, 4:0 and *.20., etc., with majority ownership of the 1eserve 0ank were set up to meet the long-term financing reCuirements of industry and agriculture. To facilitate the growth of these institutions, a mechanism to provide concessional finance to these institutions was also put in place by the 1eserve 0ank. The first development bank .n .ndia incorporated immediately after independence in !#E under the .ndustrial )inance 'orporation %ct as a statutory corporation to pioneer institutional credit to medium and large-scale. Then after in regular intervals the government started new and different development financial institutions to attain the different objectives and helpful to five-year plans. The early history of .ndian banking and finance was marked by strong governmental regulation and control. The roots of the national system were in the #tate Bank of India !t of !,,, which nationaliBed the former .mperial 0ank of .ndia and its seven associate banks. .n the early days, this national system operated alongside of a large private banking system. 0anks were limited in their operational fle6ibility by the governmentFs desire to maintain employment in the banking system and were often drawn into troublesome loans in order to further the governmentFs social goals. The financial institutions in .ndia were set up under the strong control of both central and state Dovernments, and the Dovernment utiliBed these institutions for the achievements in planning and development of the nation as a whole. The all .ndia financial institutions can be classified under four heads according to their economic importance that are:

%ll-.ndia 2evelopment 0anks *pecialiBed )inancial .nstitutions .nvestment .nstitutions *tate-level institutions ?ther institutions

*edit+ Industrial De#elopment Bank of India .IDBI/

The .ndustrial 2evelopment 0ank of .ndia 7.20.8 was established on July , !"# under an %ct of Parliament as a wholly owned subsidiary of the 1eserve 0ank of .ndia. .n "th )ebruary !+", the ownership of .20. was transferred to the Dovernment of .ndia and it was made the principal financial institution for coordinating the activities of institutions engaged in financing, promoting and developing industry in the country. %lthough Dovernment shareholding in the 0ank came down below --G following .20.Fs public issue in July !!,, the former continues to be the major shareholder 7current shareholding: ,>.@G8. 2uring the four decades of its e6istence, .20. has been

instrumental not only in establishing a well-developed, diversified and efficient industrial and institutional structure but also adding a Cualitative dimension to the process of industrial development in the country. .20. has played a pioneering role in fulfilling its mission of promoting industrial growth through financing of medium and long-term projects, in consonance with national plans and priorities. ?ver the years, .20. has enlarged its basket of products and services, covering almost the entire spectrum of industrial activities, including manufacturing and services. .20. provides financial assistance, both in rupee and foreign currencies, for green-field projects as also for e6pansion, modernisation and diversification purposes. .n the wake of financial sector reforms unveiled by the government since !!>, .20. evolved an array of fund and feebased services with a view to providing an integrated solution to meet the entire demand of financial and corporate advisory reCuirements of its clients. .20. also provides indirect financial assistance by way of refinancing of loans e6tended by *tate-level financial institutions and banks and by way of rediscounting of bills of e6change arising out of sale of indigenous machinery on deferred payment terms. .20. has played a pioneering role, particularly in the pre-reform era 7 !"#-! 8,in catalyBing broad based industrial development in the country in keeping with its Dovernment-ordained Hdevelopment bankingF charter. .n pursuance of this mandate, .20.Fs activities transcended the confines of pure long-term lending to industry and encompassed, among others, balanced industrial growth through development of backward areas, modernisation of specific industries, employment generation, entrepreneurship development along with support services for creating a deep and vibrant domestic capital market, including development of apposite institutional framework. 4arasimam committee recommends that .20. should give up its direct financing functions and concentrate only in promotional and refinancing role. 0ut this recommendation was rejected by the government. 9atter 10. constituted a committee under the chairmanship of *.:.;han to e6amine the concept of development financing in the changed global challenges. This committee is the first to recommend the concept of universal banking. The committee wanted to the development financial institution to diversify its activity. .t recommended to harmonise the role of development financing and banking activities by getting away from the conventional distinction between commercial banking and developmental banking. .n *eptember >--@, .20. diversified its business domain further by acCuiring the entire shareholding of Tata )inance 9imited in Tata :ome finance 9td., signaling .20.Fs foray into the retail finance sector. The fully-owned housing finance subsidiary has since been renamed H.20. :ome finance 9imitedF. .n view of the signal changes in the operating environment, following initiation of reforms since the early nineties, Dovernment of .ndia has decided to transform .20. into a commercial bank without eschewing its secular development finance obligations. The migration to the new business model of commercial banking, with its gateway to low-cost current, savings bank deposits, would help overcome most of the limitations of the current business model of development

finance while simultaneously enabling it to diversify its clientI asset base. Towards this end, the IDB (Transfer of Undertaking and Repeal) !t >--@ was passed by Parliament in 2ecember >--@. The %ct provides for repeal of .20. %ct, corporatisation of .20. 7with majority Dovernment holding( current share: ,E.#+G8 and transformation into a commercial bank. The provisions of the %ct have come into force from July >, >--# in terms of a Dovernment 4otification to this effect. The 4otification facilitated formation, incorporation and registration of .ndustrial 2evelopment 0ank of .ndia 9td. as a company under the $ompanies !t, !," and a deemed 0anking 'ompany under the Banking Regulation !t !#! and helped in obtaining reCuisite regulatory and statutory clearances, including those from 10.. .20. would commence banking business in accordance with the provisions of the new %ct in addition to the business being transacted under IDBI !t, !"# from ?ctober , >--#, the H%ppointed 2ateF notified by the 'entral Dovernment. .20. has firmed up the infrastructure, technology platform and reorientation of its human capital to achieve a smooth transition. .20. 0ank, with which the parent .20. was merged, was a vibrant new generation 0ank. The Pvt 0ank was the fastest growing banking company in .ndia. The bank was pioneer in adapting to policy of first mover in tier > cities. The 0ank also had the least 4P% and the highest productivity per employee in the banking industry. ?n July >!, >--#, the 0oard of 2irectors of .20. and .20. 0ank accorded in principle approval to the merger of .20. 0ank with the .ndustrial 2evelopment 0ank of .ndia 9td. to be formed incorporated under the $ompanies !t, !," pursuant to the IDB (Transfer of Undertaking and Repeal) !t, >--@ 7,@ of >--@8, subject to the approval of shareholders and other regulatory and statutory approvals. % mutually gainful proposition with positive implications for all stakeholders and clients, the merger process is e6pected to be completed during the current financial year ending Jarch @ , >--,. The immediate fall out of the merger of .20. and id"i "ank was the e6it of employees of idbi bank. The cultures in the two organiBations have taken its toll. The .20. 0%4; now is in a growing fold. Aith its retail banking arm e6panding further after the merger of Knited western 0ank. .20. would continue to provide the e6tant products and services as part of its development finance role even after its conversion into a banking company. .n addition, the new entity would also provide an array of wholesale and retail banking products, designed to suit the specific needs cash flow reCuirements of corporates and individuals. .n particular, .20. would leverage the strong corporate relationships built up over the years to offer customised and total financial solutions for all corporate business needs, single-window appraisal for term loans and working capital finance, strategic advisory and Lhand-holdingM support at the implementation phase of projects, among others. .20.Fs transformation into a commercial bank would provide a gateway to low-cost deposits like 'urrent and *avings 0ank 2eposits. This would have a positive impact on the 0ankFs overall cost of funds and facilitate lending at more competitive rates to its clients. The new entity would offer various retail products, leveraging upon its e6isting

relationship with retail investors under its e6isting *uvidha )le6i-bond schemes. .n the emerging scenario, the new .20. hopes to realiBe its mission of positioning itself as a one stop super-shop and most preferred brand for providing total financial and banking solutions to corporates and individuals, capitalising on its intimate knowledge of the .ndian industry and client reCuirements and large retail base on the liability side. .20. upholds the highest standards of corporate governance in its operations. The responsibility for maintaining these high standards of governance lies with its 0oard of 2irectors. Two 'ommittees of the 0oard viB. the 56ecutive 'ommittee and the %udit 'ommittee are adeCuately empowered to monitor implementation of good corporate governance practices and making necessary disclosures within the framework of legal provisions and banking conventions.

*edit+ Industrial In#estment Bank of India $td.

The industrial investment bank of .ndia is one of oldest banks in .ndia. The .ndustrial 1econstruction 'orporation of .ndia 9td., set up in !+ for rehabilitation of sick industrial companies, was reconstituted as .ndustrial 1econstruction 0ank of .ndia in !E, under the IRBI !t, !E#. Aith a view to converting the institution into a fullfledged development financial institution, .10. was incorporated under the $ompanies !t, !,", as .ndustrial .nvestment 0ank of .ndia 9td. 7..0.8 in Jarch !!+. ..0. offers a wide range of products and services, including term loan assistance for project finance, short duration non-project asset-backed financing, working capitalI other short-term loans to companies, eCuity subscription, asset credit, eCuipment finance as also investments in capital market and money market instruments. .n view of certain structural and financial problems adversely impacting its long-term viability, ..0. submitted a financial restructuring proposal to the Dovernment of .ndia on July >,, >--@. ..0. has since received certain directives from the Dovernment of .ndia, which, inter alias, include restricting fresh lending to e6isting clients approved cases rated corporates, restrictions on fresh borrowings, an action plan to reduce the overhead e6penditure, disposal of fi6ed assets and a time-bound plan for asset recoveryIreconstruction. The Dovernment of .ndia has also given its approval for the merger of ..0. with .20. and the latter has already started the due diligence process.