IDBI Bank

Industrial Development Bank of India Ltd.

Type Public (BSE: 500116)

Industry Banking

Financial services

Founded July 1964

Headquarters Mumbai, India

Key people Shri R. M. Malla, CMD

Products Finance and insurance

Employees 8,989

Website www.idbi.com
The Industrial Development Bank of India Limited (IDBI) (BSE: 500116) is one of India's leading public
sector banks and 4th largest Bank in overall ratings. RBI categorised IDBI as an "other public sector bank".
It was established in 1964 by an Act of Parliament to provide credit and other facilities for the development
of the fledgling Indian industry.[1] It is currently 10th largest development bank in the world in terms of reach
with 1300 ATMs, 758 branches and 513 centers. [2] Some of the institutions built by IDBI are the National
Stock Exchange of India (NSE), theNational Securities Depository Services Ltd (NSDL), the Stock Holding
Corporation of India (SHCIL), the Credit Analysis & Research Ltd, the Export-Import Bank of India(Exim
Bank), the Small Industries Development bank of India(SIDBI), the Entrepreneurship Development Institute
of India, and IDBI BANK, which today is owned by the Indian Government, though for a brief period it was a
private scheduled bank.

Contents
 [hide]

1 Recent developments

2 Overview of development banking in

India

3 Industrial Development Bank of India

(IDBI)

4 Industrial Investment Bank of India Ltd.

5 Acquisition of United Western Bank

6 See also

7 References

8 External links

Recent developments

To meet emerging challenges and to keep up with reforms in financial sector, IDBI has taken steps to
reshape its role from a development finance institution to a commercial institution. With the Industrial
Development Bank (Transfer of Undertaking and Repeal) Act, 2003, IDBI attained the status of a limited
company viz. "Industrial Development Bank of India Limited" (IDBIL). Subsequently, the Reserve Bank of
India (RBI) issued the requisite notification on 30 September 2004 incorporating IDBI as a 'scheduled bank'
under the RBI Act, 1934. Consequently, IDBI, formally entered the portals of banking business as IDBIL
from 1 October 2004.

The commercial banking arm, IDBI BANK, was merged into IDBI. In March 2008, IDBI Bank entered into a
joint venture with Federal Bank and Fortis Insurance International to form IDBI Fortis Life Insurance, of
which IDBI Bank owns 48 percent. The company ended the year with over 300 Cr in premiums as on 31
March 2009.
Overview of development banking in India

The concept of development banking rose only after Second World War, after the Great Depression in
1930s. The demand for reconstruction funds for the affected nations compelled in setting up a worldwide
institution for reconstruction. As a result the IBRD was set up in 1945 as a worldwide institution for
development and reconstruction. This concept has been widened all over the world and resulted in setting
up of large number of banks around the world which coordinating the developmental activities of different
nations with different objectives among the world. The Narashimam committee had recommended to give
up its direct financing functions and to perform only the promotional and refinancing role. However, the
S.H.Khan committee, appointed by the RBI, recommended its transformation into a universal bank. [3]

The course of development of financial institutions and markets during the post-Independence period was
largely guided by the process of planned development pursued in India with emphasis on mobilisation of
savings and channeling investment to meet Plan priorities. At the time of Independence in 1947, India had
a fairly well-developed banking system. The adoption of bank dominated financial development strategy
was aimed at meeting the sectoral credit needs, particularly of agriculture and industry. Towards this end,
the Reserve Bank concentrated on regulating and developing mechanisms for institution building. The
commercial banking network was expanded to cater to the requirements of general banking and for
meeting the short-term working capital requirements of industry and agriculture. Specialised development
financial institutions (DFIs) such as the IDBI, NABARD, NHB and SIDBI, etc., with majority ownership of the
Reserve Bank were set up to meet the long-term financing requirements of industry and agriculture. To
facilitate the growth of these institutions, a mechanism to provide concessional finance to these institutions
was also put in place by the Reserve Bank.

The first development bank In India incorporated immediately after independence in 1948 under the
Industrial Finance Corporation Act as a statutory corporation to pioneer institutional credit to medium and
large-scale. Then after in regular intervals the government started new and different development financial
institutions to attain the different objectives and helpful to five-year plans.

The early history of Indian banking and finance was marked by strong governmental regulation and control.
The roots of the national system were in the State Bank of India Act of 1955, which nationalized the former
Imperial Bank of India and its seven associate banks. In the early days, this national system operated
alongside of a large private banking system. Banks were limited in their operational flexibility by the
government’s desire to maintain employment in the banking system and were often drawn into troublesome
loans in order to further the government’s social goals.

The financial institutions in India were set up under the strong control of both central and state
Governments, and the Government utilized these institutions for the achievements in planning and
development of the nation as a whole. Thus all India financial institutions can be classified under five heads
according to their economic importance that are:
 All-India Development Banks

 Specialized Financial Institutions

 Investment Institutions

 State-level institutions

 Other institutions..
Industrial Development Bank of India (IDBI)

The Industrial Development Bank of India (IDBI) was established on 1 July 1964 under an Act of
Parliament as a wholly owned subsidiary of the Reserve Bank of India. In 16 February 1976, the ownership
of IDBI was transferred to the Government of India and it was made the principal financial institution for
coordinating the activities of institutions engaged in financing, promoting and developing industry in the
country. Although Government shareholding in the Bank came down below 100% following IDBI’s public
issue in July 1995, the former continues to be the major shareholder (current shareholding: 52.3%). During
the four decades of its existence, IDBI has been instrumental not only in establishing a well-developed,
diversified and efficient industrial and institutional structure but also adding a qualitative dimension to the
process of industrial development in the country. IDBI has played a pioneering role in fulfilling its mission of
promoting industrial growth through financing of medium and long-term projects, in consonance with
national plans and priorities. Over the years, IDBI has enlarged its basket of products and services,
covering almost the entire spectrum of industrial activities, including manufacturing and services. IDBI
provides financial assistance, both in rupee and foreign currencies, for green-field projects as also for
expansion, modernisation and diversification purposes. In the wake of financial sector reforms unveiled by
the government since 1992, IDBI evolved an array of fund and fee-based services with a view to providing
an integrated solution to meet the entire demand of financial and corporate advisory requirements of its
clients. IDBI also provides indirect financial assistance by way of refinancing of loans extended by State-
level financial institutions and banks and by way of rediscounting of bills of exchange arising out of sale of
indigenous machinery on deferred payment terms.

IDBI has played a pioneering role, particularly in the pre-reform era (1964–91),in catalyzing broad based
industrial development in the country in keeping with its Government-ordained ‘development banking’
charter. In pursuance of this mandate, IDBI’s activities transcended the confines of pure long-term lending
to industry and encompassed, among others, balanced industrial growth through development of backward
areas, modernisation of specific industries, employment generation, entrepreneurship development along
with support services for creating a deep and vibrant domestic capital market, including development of
apposite institutional framework.

Narasimam committee[4] recommends that IDBI should give up its direct financing functions and
concentrate only in promotional and refinancing role. But this recommendation was rejected by the
government. Later RBI constituted a committee under the chairmanship of S.H.Khan to examine the
concept of development financing in the changed global challenges. This committee is the first to
recommend the concept of universal banking. The committee wanted the development financial institution
to diversify its activity. It recommended to harmonise the role of development financing and banking
activities by getting away from the conventional distinction between commercial banking and
developmental banking.

In September 2003, IDBI diversified its business domain further by acquiring the entire shareholding of
Tata Finance Limited in Tata Home finance Ltd., signaling IDBI’s foray into the retail finance sector. The
fully-owned housing finance subsidiary has since been renamed ‘IDBI Home finance Limited’. In view of the
signal changes in the operating environment, following initiation of reforms since the early nineties,
Government of India has decided to transform IDBI into a commercial bank without eschewing its secular
development finance obligations. The migration to the new business model of commercial banking, with its
gateway to low-cost current, savings bank deposits, would help overcome most of the limitations of the
current business model of development finance while simultaneously enabling it to diversify its client/ asset
base. Towards this end, the IDB (Transfer of Undertaking and Repeal) Act 2003 was passed by Parliament
in December 2003. The Act provides for repeal of IDBI Act, corporatisation of IDBI (with majority
Government holding; current share: 58.47%) and transformation into a commercial bank. The provisions of
the Act have come into force from 2 July 2004 in terms of a Government Notification to this effect. The
Notification facilitated formation, incorporation and registration of Industrial Development Bank of India Ltd.
as a company under the Companies Act, 1956 and a deemed Banking Company under the Banking
Regulation Act 1949 and helped in obtaining requisite regulatory and statutory clearances, including those
from RBI. IDBI would commence banking business in accordance with the provisions of the new Act in
addition to the business being transacted under IDBI Act, 1964 from 1 October 2004, the ‘Appointed Date’
notified by the Central Government. IDBI has firmed up the infrastructure, technology platform and
reorientation of its human capital to achieve a smooth transition.

IDBI Bank, with which the parent IDBI was merged, was a vibrant new generation Bank. The Pvt Bank was
the fastest growing banking company in India. The bank was pioneer in adapting to policy of first mover in
tier 2 cities. The Bank also had the least NPA and the highest productivity per employee in the banking
industry.

On 29 July 2004, the Board of Directors of IDBI and IDBI Bank accorded in principle approval to the merger
of IDBI Bank with the Industrial Development Bank of India Ltd. to be formed incorporated under
the Companies Act, 1956 pursuant to the IDB (Transfer of Undertaking and Repeal) Act, 2003 (53 of 2003),
subject to the approval of shareholders and other regulatory and statutory approvals. A mutually gainful
proposition with positive implications for all stakeholders and clients, the merger process is expected to be
completed during the current financial year ending 31 March 2005.

The immediate fall out of the merger of IDBI and idbi bank was the exit of employees of idbi bank. The
cultures in the two organizations have taken its toll. The IDBI BANK now is in a growing fold. With its retail
banking arm expanding further after the merger of United western Bank.
IDBI would continue to provide the extant products and services as part of its development finance role
even after its conversion into a banking company. In addition, the new entity would also provide an array of
wholesale and retail banking products, designed to suit the specific needs cash flow requirements of
corporates and individuals. In particular, IDBI would leverage the strong corporate relationships built up
over the years to offer customised and total financial solutions for all corporate business needs, single-
window appraisal for term loans and working capital finance, strategic advisory and “hand-holding” support
at the implementation phase of projects, among others.

IDBI’s transformation into a commercial bank would provide a gateway to low-cost deposits like Current
and Savings Bank Deposits. This would have a positive impact on the Bank’s overall cost of funds and
facilitate lending at more competitive rates to its clients. The new entity would offer various retail products,
leveraging upon its existing relationship with retail investors under its existing Suvidha Flexi-bond schemes.
In the emerging scenario, the new IDBI hopes to realize its mission of positioning itself as a one stop super-
shop and most preferred brand for providing total financial and banking solutions to corporates and
individuals, capitalising on its intimate knowledge of the Indian industry and client requirements and large
retail base on the liability side.

IDBI upholds the highest standards of corporate governance in its operations. The responsibility for
maintaining these high standards of governance lies with its Board of Directors. Two Committees of the
Board viz. the Executive Committee and the Audit Committee are adequately empowered to monitor
implementation of good corporate governance practices and making necessary disclosures within the
framework of legal provisions and banking conventions.

Industrial Investment Bank of India Ltd.

The industrial investment bank of India is one of oldest banks in India. [5] The Industrial Reconstruction
Corporation of India Ltd., set up in 1971 for rehabilitation of sick industrial companies, was reconstituted as
Industrial Reconstruction Bank of India in 1985 under the IRBI Act, 1984. With a view to converting the
institution into a full-fledged development financial institution, IRBI was incorporated under the Companies
Act, 1956, as Industrial Investment Bank of India Ltd. (IIBI) in March 1997. IIBI offers a wide range of
products and services, including term loan assistance for project finance, short duration non-project asset-
backed financing, working capital/ other short-term loans to companies, equity subscription, asset credit,
equipment finance as also investments in capital market and money market instruments.

In view of certain structural and financial problems adversely impacting its long-term viability, IIBI submitted
a financial restructuring proposal to the Government of India on 25 July 2003. IIBI has since received
certain directives from the Government of India, which, inter alias, include restricting fresh lending to
existing clients approved cases rated corporates, restrictions on fresh borrowings, an action plan to reduce
the overhead expenditure, disposal of fixed assets and a time-bound plan for asset
recovery/reconstruction. The Government of India had also given its approval for the merger of IIBI with
IDBI and the latter had already started the due diligence process. [6]
But on 17 December 2005 the IDBI rejected any such merger. [7]

Acquisition of United Western Bank

In 2006, IDBI Bank acquired United Western Bank in a rescue.[8] Annasaheb Chirmule, who worked for
the cause of Swadeshi movement, founded Satara Swadeshi Commercial Bank in 1907, and some three
decades later founded United Western Bank. The bank was incorporated in 1936, and commenced
operations the next year, with its head office in Satara, in Maharashtra State. It became a Scheduled Bank
in 1951. In 1956 it merged with Union Bank of Kolhapur, and in 1961 with Satara Swadeshi Commercial
Bank.[9] At the time of the merger with IDBI, United Western had some 230 branches spread over 47
districts in 9 states, controlled by five Zonal Offices at Mumbai, Pune,Kolhapur, Jalgaon and Nagpur.