Ordinance To Repeal Idbi Act In The Offing

The finance ministry is set to repeal the Industrial Development Bank of India (IDBI) Act 1964, through an Ordinance that will be put in place over the next couple of days.

Industry sources said the government has given the nod for the Ordinance at a recent Cabinet meeting. This will set the path for IDBI's corporatisation, which former finance minister, Yashwant Sinha had announced in his 2001-02 budget speech.

The government was in two minds over repealing the IDBI Act and was weighing options of either doing it through an Ordinance or a Bill. Sources said the government was uncertain whether a Bill would be passed by the upper house of Parliament following strong opposition against repeal of the Act.

In view of this, the Cabinet cleared an Ordinance for repealing the Act, explained sources. The Ordinance will subsequently have to be passed by Parliament in six months. Finance ministry officials, however, could not be contacted for comments.

If successful this will allow the largest institution to be corporatised and a portion of its equity divested. The repeal will also allow IDBI to merge with some bank to form an universal bank to undertake banking and other financial services. The official spokesperson of IDBI did not comment on the issue as it involved a government decision.

IDBI was set up in 1964 under the act of Parliament as a special financial institution to aid the development of industries. Initially, the institution was set up as a subsidiary of the Reserve Bank of India (RBI).

In 1972, it was made an independent organisation and came under the jurisdiction of the government. Subsequently, the responsibility of supervision of IDBI went to RBI on the basis of the Narasimhan Committee report in 1991.

Now with the Act being repealed, IDBI will function like any other bank while maintaining capital adequacy ratio, credit deposit ratio and other parameters.

Meanwhile, the employees association of IDBI are against the corporatisation. They have even written to the president and the prime minister urging them to intervene and stop the Ordinance being passed. The associations are also chalking out their course of action to block the corporatisation bid.