IDBI was established as a wholly-owned subsidiary of RBI under the Industrial Development Act of Parliament on 1st July 1964. In Feb 1976, ownership of IDBI was transferred to Govt. Of India. Currently GOI has 52.3% shareholding in IDBI. IDBI has set up institutions like NSE of India, National Securities Depository Services Ltd (NSDSL) & the Stock Holding Corporation of India (SHCIL). It is currently the 10th largest Development Bank in the world in terms of reach and India’s largest Financial Institution.
1] Why was IDBI established and what role does it perform? a) Provide credit and long-term financing requirements of industry and agriculture b) Coordinate activities of institutions engaged in financing, promoting and developing the Indian industry. c) Development of backward areas. d) Modernization e) Entrepreneurship development programmes , provision of TCOs for small and medium enterprises, upgradation of technology and programmes for economic upliftment of the underprivileged.
2] How did IDBI raise its seed capital? And how does it continue to raise its capital? a) In the pre- reform period, it relied on the GOI. b) Due to its developmental role, it was initially exempted from income tax. c) Shares. d) Bonds.
1972 - IDBI helped establishing the Kerala Industrial and Technical Consultancy Organisation and contributed 51% to its paid-up capital of Rs 2 lakhs. 1973 - Sponsored NEITCO and BITCO. It also received various lines of credit from IDA/World Bank in US dollars. 1976 - Introduced 2 seed capital assistance schemes (i) SFCs Special Share Capital Scheme and (ii) IDBI‘s own scheme. 1985 - Equipment Refinance Scheme was introduced. 1986 - Small Industries Development Fund was set up. 1987 - The National Equity Fund Scheme was introduced in August.
Difficulty in mobilizing low cost funds. High NPAs (around 10,000 cr as of 2001) . Competitive environment leads an FI like IDBI to go the commercial way in order to keep afloat.
1992 - The bank entered the area of merchant banking. It also set up a FOREX dealing room. 1994 - IDBI LTD merged with IDBI BANK to form IDBI BANK LTD. The Bank obtained the membership of NSE. It also set up a Mutual Fund. 1995 - The bank entered into an Umbrella Grant Agreement with the World Bank for US $ 50 million. 1997 - IDBI signed a $50-million bilateral seven-year loan facility arranged by Asahi Finance Ltd with Asahi Bank Ltd Hong Kong as the lender.
IDBI merged FOREX and domestic treasury operations. Pench Power Ltd tied up its financing with IDBI for a thermal power project. 1998 - IDBI signed a $150 million line of credit with the Export- Import Bank of Japan (EXIM-J) at Tokyo. 1999 - An MoU between IDBI and Principal Financial Group was signed in Mumbai. Hughes Telecom (India) has tied up a Rs 250-crore loan with IDBI. 2001 - IDBI launched a new company -IDBI Trusteeship Services Ltd. India Ties up with Andhra Bank to sell Government of India (GOI) saving bonds.
2003 - IDBI okays 50 % Asset Management Company (AMC) stake sell off to Principal Financial Group of the USA. IDBI is also permitted to issue SLR bonds. Acquires entire stake of Tata Finance Ltd. in Tata Homefinance Ltd. for Rs 49.98 cr. enters housing finance sector. It buys 10% stake in NDBL 2006 - IDBI signed an MoU with Fortis. IDBI also acquired United Western Bank. 2007 - IDBI Fortis Life Insurance Co. Ltd is a JV of IDBI Bank, Federal Bank (India) and Fortis Insurance International.
Global Standards: a) Basel Standards Domestic Standards(w.r.t. RBI) A Capital Adequacy Ratio(CAR) of 9%
Can we afford to lose our prime lender to expand our commercial arm? Are these wise decisions considering even after more then 62 yrs of independence we are still ‘developing’? In spite of all these decisions by IDBI, it still gets an underrating as far as a universal bank goes- Merrill Lynch