IDBI gets development role
INTERIM BUDGET & THE ECONOMY/DEVELOPMENT FINANCE
| The role assigned to IDBI is in keeping with its core competence: its experience in project appraisal, funding and coordination. |
| The government expects IDBI to disburse funds fast and at "reasonable rates". Finance Minister Jaswant Singh has also promised to provide the requisite support to IDBI for this task. |
| The government had earlier supported financial institutions like IDBI by allowing them to issue statutory liquidity ratio (SLR) bonds, which were backed by government guarantees. |
| IDBI also received support from the government through the National Industrial Credit - Long Term Operations (NIC-LTO) fund. The cheap long-term fund enabled IDBI to extend term loans at reasonable rates. |
| Singh said IDBI's efforts would be complemented by other premier institutions and banks such as the Infrastructure Development Finance Corporation (IDFC) and the State Bank of India (SBI). |
| Singh had said on January 9 the restructuring of IDBI and IFCI would be completed by April 1. Parliament had cleared the IDBI Repeal Bill in December, enabling the institution's conversion into a universal bank. |
| He had said the government was planning to promulgate an ordinance to improve the health of financial institutions. He, however, did not divulge the details of the proposed ordinance. |
| On IFCI, Singh said the organisation would be restructured by transferring its impaired assets to an asset reconstruction company (ARC). |
| According to sources close to the financial institution, IDBI is unlikely to be merged with a public sector bank. |
| Going by the Bank Nationalisation Act, a public sector bank cannot be merged with IDBI. Merge IDBI with a public sector bank will also affect its status as a development financial institution. |
| Officials also pointed that the government might allow IDBI to raise money through some new instruments, which would bring down the cost of its liabilities. |
| It is not known whether these instruments will be guaranteed by the government or whether they will have a tax-free status. |
| Industrial Finance Corporation of India (IFCI) will be merged with Punjab National Bank (PNB). The boards of both the institutions passed resolutions to this effect last week. However, the share swap ratio is yet to be decided. |
| IFCI had an asset base of around Rs 17,000 crore at the end of 2002-2003, of which about one-third is impaired. |