Big Public Sector Bank Ideal For Idbi Merger : Bcg

The Boston Consultancy Group (BCG) has suggested to the Industrial Development Bank of India (IDBI) that the ideal merger route for the institution would be with a large public sector bank having a deposit base of Rs 40,000 crore and above. It has also said that IDBI Bank should remain as a fall back option for the institution.

In the run up to its plan for conversion into a universal bank, IDBI has sought RBI's forbearance in regard to diluting its stake in IDBI Bank till March 2002. IDBI holds 57 per cent in the bank and as per regulatory requirement it has to dilute its stake to 40 per cent.

 

BCG is assisting the institution in its transformation into a universal bank. In its presentation to the IDBI board on November 12, BCG said the ideal merger partner should be a bank with a substantial deposit base (over Rs 40,000 crore), with a good potential for growth, high profitability, large capital base and full government ownership.

The board had also decided that the merger candidate has to be identified quickly and carefully after evaluating the bank's specific and potential problems.

The board had also said that "to ensure expeditious fruition of the merger, it should be essential to aim at minimum legislative amendments." The board has also decided that till the final option is crystallised, IDBI Bank would be kept as fall-back option for merger.

BCG has also said that an immediate merger with a large-sized bank is not likely to have much adverse impact on the financials of the merged entity. In an optimistic scenario the merged entity could make profits from the first year and in the worst scenario it might make a loss in the initial year. The consultant has also said that the immediate merger with a larger bank would be much more smooth and elegant given the government's one time financial support and phased enforcement/toning down of regulatory requirements by RBI.

Though a deferred merger with a larger bank will not have any adverse impact on the financials and would be more attractive but it might prove to be more cumbersome. Also the deferred merger might be jeopardised in the event of any adverse developments in either of the two entities during the transitional period.