Ordinance to repeal IDBI Act

NEW DELHI: In a bid to speed up IDBI''s transformation into a universal bank, the Government is likely to bring in an ordinance to repeal the IDBI Act and enable the country''s leading FI to register under Companies Act.
The Finance Ministry has cleared the ordinance and it is now being vetted by the Law Ministry, official sources said. The aim is to issue the ordinance ahead of the monsoon session of Parliament.
The Government is likely to exclude some of the provisions in the RBI Act which envisages the role of IDBI as a Development Financial Institution, sources said.
Finance Minister Yashwant Sinha indicated in the last budget that the changes would be brought about in IDBI Act.
Official sources said government plans to bring in an ordinance to avoid delay as the bill if introduced in Parliament could be referred to the Standing Committee on Finance.
After repeal of the Act, Government intends to register IDBI under the Companies Act of 1956 and transfer its assets to the new company.
Government then intends to merge the new company with a robust PSU bank to create a universal bank in line with ICICI and ICICI Bank.
Currently, Section 2C of IDBI Act defines the role of IDBI as a development financial institution and the activities it can carry out.
After a reverse merger with a PSU bank, IDBI will be free to mobilise low cost funds and at the same time lend for longer terms.
Sources, however, said IDBI is unlikely to merge its banking arm IDBI Bank with itself in its pursuit of universal banking as it might pose some difficulties in meeting RBI''s statutory requirements.
IDBI currently has assets worth about Rs 70,000 crore while IDBI Bank''s assets are at Rs 5,000-6,000 crore. IDBI''s non-performing assets, which amounts to about 14 per cent of its advances, are likely to be sold to the proposed Asset Reconstruction Company, the sources said.
The need to repeal IDBI Act comes in the wake of growing competition from commercial banks and shrinking profits of the FI in the years of recession.
Currently, IDBI is barred from mobilising deposits like banks but has greater risk exposure in funding mega projects.
The IDBI Act also bars the FI to mobilise funds through bonds without the approval of the government.
Last fiscal, the FI mopped up Rs 1,000 crore from bonds issue but had to resort to government''s assistance to the tune of Rs 2,000 crore to meet the debt obligations.