IDBI to extinguish 2.5% IDBI Bank stake

The government has asked Industrial Development Bank of India (IDBI) to extinguish the 2.5 per cent of its holding in IDBI Bank it was to retain in a special purpose trust.

The directive is meant to ensure that the government holding in IDBI remains above 51 per cent after the merger of IDBI Bank.

IDBI currently holds 55.33 per cent stake in IDBI Bank. It had earlier proposed to retain 2.5 per cent in a trust for future realisation and extinguish the remaining stake.

The government wanted to have its shareholding above 51 per cent even after the proposed issue of 12.5 crore shares as ESOPs to IDBI Bank employees after the merger, said J N Godbole, the whole-time director of IDBI who is performing the functions of a chairman.

The share-swap ratio has been decided at one share of IDBI for every 1.42 shares of IDBI Bank.

IDBI today sought its shareholders' approval for the merger scheme and conducted a secret ballot at an extraordinary general meeting today. The merger scheme has to be approved by two-thirds in value of the shareholders present either in person or by proxy.

Godbole told the shareholders that the results of the polling would be announced in the first week of March. The amalgamation of the accounts of IDBI and IDBI Bank will take effect from the appointed date of October 1, 2005.

The merger will be effective on the date on which it is sanctioned by the RBI or the date as may be specified by it.

As per the the share swap ratio, the government's holding in the merged entity would have been 51.4 per cent. But the decision to allot ESOPs to IDBI Bank employees after the merger would have led to government's stake dropping below 51 per cent. IDBI Bank board and shareholders had approved the issue of ESOPs in April 2000.