Friday, July 30, 2004

IDBI considers merger with IDBI Bank

State-run Industrial Development Bank of India (IDBI), India's largest long-term lender to big business, said it was considering merging with the commercial bank it founded, IDBI Bank.
IDBI will convert into a commercial bank later this year and would first merge with IDBI Home Finance, an affiliate, and then potentially with IDBI Bank Ltd. Term lenders such as IDBI mainly cater to big businesses and cannot access cheap retail deposits that commercial banks can.
They must depend on raising cash through costlier bonds. Conversion to a commercial bank is seen crucial to turning round IDBI, which has been struggling with heavy bad loans. Fresh deposits cost IDBI more than 6 per cent against around 4.5 per cent for top commercial banks. Earlier another term lender ICICI had merged with ICICI Bank, to become India's 2nd largest bank after state-run State Bank of India. A merger between IDBI, which has a market capitalisation of $650 million and IDBI Bank with $220 million, would lag ICICI Bank, which has a market value of $4.24 billion.
The process of turning round IDBI would be completed in a year and a half if everything went off as planned. IDBI has suggested October 1 as the date for its conversion into a commercial bank, and it is awaiting government approval.

at Statesman

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