Idbi Seeks Alliance With Bob To Advance Short-Term Credit

The Industrial Development Bank of India and Bank of Baroda (BoB) two major players in the financial sector are in talks to form a tieup for advancing working capital loans. IDBI wants to utilise the expertise and network of BoB to advance short-term loans to corporates in the form of cash credit.

At present, IDBI is disbursing short-term loans only through its wholly-owned subsidiary IDBI Bank. Sources point out that IDBI had approached various commercial banks for a tieup, but they did not show much interest as they see the all-India financial institution as a competitor now that the firewalls between commercial banking and long-term credit providers have broken down.

 

It is felt that BoB will give its distribution network to IDBI, which can be utilised to disburse short term loans. IDBI, on the other hand, might give a piece of its long-term portfolio pie to BoB.

After the last credit policy, financial institutions like IDBI and Industrial Credit and Investment Corporation of India (ICICI) aggressively entered the short-term market to advance working capital loans. In fact, ICICI has already sanctioned more than Rs 1000 crore worth of short-term loans.

Simultaneously, commercial banks have also started entering the long-term market which is essentially the domain of financial institutions. IDBI has the expertise in the long-term market, which could be utilised by BoB.

IDBI had planned to tie up with various banks to disburse their short-term loans. At present, IDBI is advancing the loan component of maximum permissible bank finance through IDBI Bank. However, IDBI had planned to disburse the cash credit component for the MPBF and this will take off after the financial institution has tied up with a few commercial banks.

Industry sources say the strategy of tying up with banks is difficult to implement and that IDBI should stick to advancing short-term loans to its existing client base. If it wants to expand its base, a tieup with commercial banks will be necessary.

Sources say that such tieups will get increasing difficult as the credit offtake has been very low over the past few months.

Corporate credit between April 1 and May 23, 1997 has seen a decline of Rs 828 crore to Rs 2,77,588 crore. During the same period, deposits rose by Rs 10,000 crore.

The chairman of a bank which had been approached by IDBI said, With clients not drawing funds from my bank, why should I share the client with IDBI?

However, it is felt that the poor credit offtake is a temporary phenomenon and, once the infrastructure projects take off, it will make sense for banks to have a tieup with an FI to share a piece of turf in the field of long term credit.