The Hindu : Par Committee approves conversion of IDBI into a bank

Online edition of India's National Newspaper
Friday, Jul 25, 2003

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Par Committee approves conversion of IDBI into a bank

NEW DELHI JULY 24. The Parliamentary Standing Committee on Finance today approved repeal of the IDBI Act, paving the way for conversion of the country's largest FI into a bank.

The Industrial Development Bank (Transfer of Undertaking and Repeal) Bill of 2002, which was introduced in the winter session of Parliament last year, was referred to the Standing Committee.

The report of the panel headed by Janardhana Reddy, which was tabled in Parliament today, strongly recommended the Government to retain its 51 per cent, grant tax exemptions for five years and offer a VRS package.

The panel also asked the Government to make suitable provisions to ensure that the new entity continues to be a development bank providing term lending to industry.

"There is no specific provision in the Bill providing for the converted entity to act as a development bank. Rather the reference of development bank is being substituted by IDBI Banking Company.

"Suitable provisions should be incorporated in the Bill to ensure that the new banking company also continues to be a development bank,'' it said. Referring to huge Rs. 10,000 crores investment made by the public in IDBI, the panel said, "the Government should make provisions that will ensure that its shareholding in IDBI does not come below 51 per cent.''

Taking into consideration the present financial health of IDBI and the challenges lying ahead, it said "management of the new entity should be in efficient hands, which could ensure greater operational transparency and accountability.''

Expressing deep concern over the absence of adequate provisions in the Bill to protect employees' interest, the committee said, "a special VRS package should be launched for the present employees of IDBI so that no employee of any category is aggrieved due to its conversion into a bank.''

When IDBI becomes a bank, its employees may be required to possess specific professional skills and may be required to be posted in new locations as the bank expands its network.

"This would compel them to opt not to be in service of the company, which in pursuance of the provisions of the Bill will be considered as if they have resigned. This provision is too harsh,'' the panel said, while suggesting a VRS package.

The Standing Committee also stressed that IDBI should make concerted efforts to recover non-performing assets, which had grown to an alarming Rs. 15,000 crores by utilising the securitisation laws and debt recovery tribunals. Moreover, the panel said grant of RBI's forbearance in the form of exemption from meeting statutory liquidity ratio (SLR) and cash reserve ratio (CRR) for five years would not be sufficient for ensuring the survival of IDBI.

"In the sixth year, the SLR and CRR requirements will mount to a whopping Rs. 25,000 crores and such a huge amount may not be attainable by a new bank in just five years,''' it said.

In this context, the panel suggested that income-tax and capital gains tax exemptions should be restored for the five year period. — PTI

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